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General Environmental Analysis General Environmental Analysis Document Transcript

  • Waste Management, Inc. Strategic Case Analysis Submitted for Approval to: Dr. Jifu Wang
  • LEADING EDGE CONSULTING Houston, TX The Leaders in Waste Management Group 1 Consultants Jason Cummings Correen Harrell Deanna Lewis Jim Upchurch David Woods
  • Page 3 of 163 Table of Contents 1.0 Executive Summary..........................................................................8 2.0 Background Information on Waste Management ..........................9 2.1. Brief History of Company............................................................................... 9 2.2. Historical Timeline of Important Events...................................................... 11 3.0 External Analysis ............................................................................13 3.1. General Environmental Analysis ................................................................. 13 3.1.1. Political/Legal Factors.............................................................................. 13 3.1.2. Economic Factors .................................................................................... 16 3.1.3. Sociocultural Factors ............................................................................... 20 3.1.4. Demographic Factors............................................................................... 21 3.1.5. Technological Factors.............................................................................. 25 3.1.6. Global Factors ......................................................................................... 28 3.1.7. Summary of the General Environmental Analysis.................................... 29 3.1.8. Driving Forces for the Future ................................................................... 30 3.2. Industry Analysis .......................................................................................... 31 3.2.1. Industry Description ................................................................................. 31 3.2.2. Industry Operations ................................................................................. 33 3.2.3. Industry Life Cycle ................................................................................... 36 3.2.4. Industry Dominant Economic Features .................................................... 37 3.2.5. Market Size.............................................................................................. 38 3.2.6. Market Growth Rate................................................................................. 38 3.2.7. Industry Trends........................................................................................ 39 3.3. Five Forces Analysis .................................................................................... 40 3.3.1. The Threat of Entry.................................................................................. 41 3.3.2. The Power of Buyers ............................................................................... 41 3.3.3. The Power of Suppliers............................................................................ 42 3.3.4. The Threat of Substitutes......................................................................... 43 3.3.5. Competitive Rivalry .................................................................................. 43 3.4. Industry Competitive Analysis..................................................................... 44 3.4.1. Industry Competitors................................................................................ 44 3.4.2. Anticipated Competitors Strategic Moves ................................................ 51 3.4.3. Summary of Competitive Analysis ........................................................... 52 3.4.4. Key Success Factors ............................................................................... 53 3.5. Summary of External Analysis .................................................................... 54 4.0 Internal Analysis .............................................................................55 4.1. Organizational Analysis ............................................................................... 55 4.1.1. Corporate Vision and Mission .................................................................. 55 4.1.2. Leadership ............................................................................................... 56 4.1.3. Culture ..................................................................................................... 57 4.1.4. Structure .................................................................................................. 58 4.1.5. Summary of Organizational Analysis ....................................................... 58 4.2. Analysis of Firm Resources......................................................................... 58 4.2.1. Tangible Resources ................................................................................. 59 Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Page 4 of 163 4.2.2. Intangible Resources ............................................................................... 62 4.2.3. Capabilities .............................................................................................. 65 4.2.4. Core Competencies and Sustainable Advantages................................... 66 4.2.5. Summary of Firm Resources ................................................................... 68 4.3. Analysis of Objectives.................................................................................. 68 4.3.1. Previous Principal Operational Focus ...................................................... 68 4.3.2. Short-Term Objectives ............................................................................. 69 4.3.3. Long-Term and Financial Objectives ....................................................... 69 4.4. Evaluation of Financial Performance (2005, 2004, 2003) ........................... 69 4.4.1. Financial Condition Analysis .................................................................... 70 4.4.2. Profitability ............................................................................................... 70 4.4.3. Management Effectiveness Ratios .......................................................... 72 4.4.4. Debt, Working Capital, and Liquidity Analysis.......................................... 73 4.4.5. Management Efficiency............................................................................ 74 4.4.6. Market Value Analysis ............................................................................. 75 4.4.7. Growth Analysis....................................................................................... 77 4.4.8. Summary of Financial Analysis................................................................ 79 4.5. Strategic Analysis......................................................................................... 80 4.5.1. Corporate-Level Strategy and Internal Strategy....................................... 80 4.5.2. Business-Level Strategy .......................................................................... 81 4.6. Value Chain Analysis.................................................................................... 83 4.6.1. Summary of Strategic Analysis ................................................................ 94 4.7. SWOT Analysis ............................................................................................. 94 4.7.1. Strengths – Internal ................................................................................. 95 4.7.2. Weaknesses – Internal ............................................................................ 98 4.7.3. Opportunities – External .......................................................................... 98 4.7.4. Threats – External ................................................................................. 101 5.0 Strategic Fit Analysis ...................................................................105 5.1. Current Strategy.......................................................................................... 105 5.2. Current and Long-Term Strategic Concerns ............................................ 106 5.3. Identification and Assessment of Activities for Strategic Fit.................. 106 5.4. TOWS Matrix................................................................................................ 109 5.5. Alternatives ................................................................................................. 112 5.6. Alternatives to Recommendations ............................................................ 115 6.0 Recommendations........................................................................116 6.1. Recommendation I...................................................................................... 117 6.1.1. Objectives .............................................................................................. 117 6.1.2. Deliverables ........................................................................................... 121 6.1.3. Milestones.............................................................................................. 122 6.1.4. Risk Assessment ................................................................................... 124 6.1.5. Long-Term Benefits ............................................................................... 125 6.2. Recommendation II..................................................................................... 127 6.2.1. Objectives .............................................................................................. 127 6.2.2. Deliverables ........................................................................................... 131 6.2.3. Milestones.............................................................................................. 135 6.2.4. Risk Assessment ................................................................................... 136 Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Page 5 of 163 6.2.5. Long-Term Benefits ............................................................................... 139 7.0 References ....................................................................................144 8.0 Appendix .......................................................................................149 8.1. Appendix I.................................................................................................... 149 Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Page 6 of 163 List of Figures Figure 3.1-1: Number of Landfills in the United States by Year 15 Figure 3.1-2: Prime Lending Rate During 1955-2006 17 Figure 3.1-3: US Gross Domestic Product Percent Growth From 2002-2005 18 Figure 3.1-4: Change in the Elderly Population and Total Population 23 Figure 3.1-5: Elderly Population (Ages 65+) 24 Figure 3.1-6: Management of Municipal Solid Waste – 2003 26 Figure 3.3-1: Porter’s Five Forces Model 40 Figure 4.4-1: Comparison of Five-Year Cumulative Return of Stock Value 76 Figure 4.4-2: Waste Management, Inc. Cash Being Returned to Shareholders 77 Figure 4.4-3: Waste Management, Inc. 5 Year Revenue Statement 78 Figure 4.4-4: Waste Management, Inc. Cash Being Returned to Shareholders 79 Figure 4.6-1: Waste Management, Inc. Value Chain 85 Figure 6.1-1: New Product Development and Introduction (NPDI) 120 Figure 6.1-2: The Portfolio Management System with its Key Components 121 Figure 6.1-3: Timeline to Implement Project Effectively 122 Figure 6.1-4: The Stage-Gate® Process 123 Figure 6.2-1: Tonnage of Materials Collected 138 Figure 6.2-2: Crude Oil Futures Prices From April 1, 2005 to April 21, 2006 140 Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Page 7 of 163 List of Tables Table 3.1-1: Worldwide Population Figures 22 Table 3.1-2: Municipal Solid Waste, 1960-2003 26 Table 3.2-1: United States Solid Waste Industry Summary 37 Table 3.2-2: United States Solid Waste Industry Growth Rate 39 Table 3.4-1: Current Financial Information for Allied Waste Industries, Inc 47 Table 3.4-2: Current Financial Information for Republic Services, Inc. 50 Table 4.4-1: Waste Management, Inc. Income Statements 71 Table 4.4-2: Waste Management, Inc. and Republic Services Margins 72 Table 4.4-3: Waste Management, Inc. ROA, ROE, and Industry Rank 72 Table 4.4-4: Waste Management, Inc. Industry, and S&P 500 73 Table 4.4-5: Waste Management, Inc. Debt, Working Capital, and Liquidity 73 Table 4.4-6: Waste Management, Inc. Condensed Balance Sheet 74 Table 4.4-7: Waste Management, Inc. Management Efficiency 75 Table 4.4-8: Waste Management, Inc. Market Value Analysis 76 Table 4.4-9: Waste Management, Inc. Revenue and Income Overview 78 Table 4.6-1: Waste Management, Inc. Strengths and Weaknesses 87 Table 4.7-1: Waste Management, Inc. SWOT Analysis 95 Table 6.2-1: Waste Management, Inc. Cost of Initial Start-Up of Program 131 Table 6.2-2: First Five Years – Total Tonnage of Each Item Collected 137 Table 6.2-3: Costs and Revenues for Products Collected by Waste Management, Inc. 141 Table 6.2-4: Proforma Statement for Waste Management, Inc. 142 Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 1.0 – Executive Summary Page 8 of 163 1.0 Executive Summary The purpose of this paper is to provide a complete and detailed strategic analysis of Waste Management, Inc. The paper will concentrate on a detailed description of the external and internal factors that affect Waste Management in the present and the future. In the external analysis, a general environment analysis will be conducted to determine the driving forces in the industry. It will continue with an industry and competitor analysis to determine the primary firms competing in the waste disposal industry. The external analysis will conclude by talking about key success factors that Waste Management must capitalize on to be successful. The internal analysis will be broken into seven sections that include an organizational analysis, a look at the firm’s resources, an objective analysis, a detailed financial analysis, strategic analysis, value chain analysis, and a SWOT analysis. A strategic fit analysis will then be conducted to determine the direction Waste Management needs to precede in based on the external and internal analyses. The strategic analysis will conclude by providing two recommendations for ensuring the survival and prosperity of Waste Management, Inc. into the future. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 2.0 – Background Information Page 9 of 163 2.0 Background Information on Waste Management Waste Management, Inc. (NYSE:WMI) has risen to be the largest waste disposal company in the nation and in larger terms, the world, with a large margin over its competitors. Through its many subsidiaries, Waste Management serves close to 2 million commercial companies and around 25 million residential consumers in the United States and Canada. The company is divided into five geographic groups, which include Eastern US, Midwestern US, Southern US, Western US, and Canada. They also have two functional groups, recycling and the waste-to energy program called Wheelabrator, which are services to each of the geographic groups. These entities provide waste collection, transfer, recycling, and disposal services to a large portion of North America (Hoovers Financial Website, 2006). The company operates around 1200 sites. Theses sites include 429 collection operations that use 366 transfer stations and 289 landfills. The landfills include six specialized sites that are disposal sites for hazardous waste. Waste Management also recycles and harvests energy from the waste they collect. The companies recycling program utilizes 138 recycling plants. To convert waste to energy, there are 17 waste-to-energy sites and 82 landfill gas projects. In the waste disposal business, Waste Management is the leader with the largest fleet of collection and transfer trucks with a staggering number of over 25,000. The company also has 432 of these trucks running on natural gas (Waste Management, 2005). 2.1. Brief History of Company Waste Management Inc. (WMI) was founded in 1968 when a waste disposal company in Chicago, called Ace Scavenger, decided to merge with a similar company Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 2.0 – Background Information Page 10 of 163 in Florida. This was primarily due to the passing of the Solid Waste Disposal Act in 1965 by the US Government. The owners of the two companies saw this as a sign of changes in the industry due to the increasing population and their views on pollution and the environment. The firm went public in 1971 and between the years of 1971 and 1980, the company saw revenue grow at a rate of 48% per year. This phenomenal growth rate was primarily due to the many acquisitions the company was making each year. The company continued to grow and enter into new markets, most significantly, the field of toxic and chemical waste treatment. There were also many joint ventures that WMI entered into with countries around the world. The company started having legal problems in the late 70’s and early 80’s, being accused of environmental crimes by the government and environmental agencies. During the mid 1980’s, the company continued to grow by acquiring more firms in their industry. In the late 1980’s and early 1990’s, WMI began investing in recycling, especially in the waste-to-energy business. The company acquired a controlling interest in the Wheelabrator Technology Company, which was a leader in the waste-to- energy industry. They also were a part of the tremendous boom in recycling and rose to be the largest recycler in the country (Business and Company Resource Center, 2006). There were many problems that plagued Waste Management since the early 1970’s. These problems dealt with criminal violations, antitrust civil cases, environmental civil cases, administrative cases, and SEC violations. One of the largest issues was the accounting scandal with Arthur Anderson and the fraudulent accounting practices that were in place in the late 90’s to early 2000’s. The accounting company and Waste Management executives inflated profits by $1.7 billion to meet projected Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 2.0 – Background Information Page 11 of 163 earning targets. This cost the company a great deal of money and damaged its image. Waste Management shareholders lost an estimated $6 billion when the stock price plummeted 33% after news of the scandal. The overall effect was the merger of WMI and USA Waste, a company only a third of the size of WMI. USA Waste took control of the two firms, but retained the Waste Management, Inc. name. Waste Management is still recovering from this loss and the deceit of their top management, many of which have been replaced due to the scandal (SEC, 2006). Waste Management, Inc. continues today to be a leader in the disposal of multiple types of waste, ranging from solid and medical waste to highly toxic chemical waste. There have been many changes in the past 5 years and a large re-organization of the firm after the SEC charges were concluded. The company continues to grow and its stock price continues to rise at healthy rates. With the cleansing of the Waste Management brand name, accurate accounting practices, and new programs that have been initiated, the company should continue far into the future. 2.2. Historical Timeline of Important Events The following figure shows a brief timeline of the major events that have occurred in Waste Management’s history. It highlights not only the successes the company has enjoyed, but also the many of the frauds and litigations that have occurred during the company’s colorful history. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • 1965 – Congress Passes Solid Waste Disposal Act 1965 1968 - Waste Management Inc. Created 1971 – WMI Goes Public 1970 Mid 1970’s – WMI grows by conducting over 200 Mergers and Acquisitions per Year Mid 1970’s – WMI Enters Chemical & Toxic Waste Disposal Leading Edge Consulting Group The Waste Management Experts 1976 – Congress Passes Industry Resource Conservation and 1975 – WMI Begins Recovery Act 1975 International Joint Ventures 1979 – First Lawsuits Brought by EPA for Illegal Practices 1980 – Acquired 20% Stock In Wheelabrator 1980 1985 1990 – Acquired Controlling Interest In Wheelabrator 1990 1991 – WMI Largest Collector of Recyclable Materials 1991 – 1998 – WMI pays Hundreds of Millions of Dollars in Fines and Penalties for Illegal Practices across the Nation 1995 1998 – WMI Admitted to Misstated Earnings of $3.5 Billion Pretax, 1998 – USA Waste, 1/3 the Size of Dating Back to 1992 WMI, Merged and Took Control of the companies 2000 Historical Timeline of Waste Management, Inc. 2005 May 4, 2006 Section 2.0 – Background Information Page 12 of 163
  • Section 3.0 – External Analysis Page 13 of 163 3.0 External Analysis The external analysis is critical for a firm to understand to be able to realize the opportunities and threats that exist in the industry they are competing in to help achieve a strategic competitiveness. The external analysis consists of a general environmental analysis, industry analysis, five forces analysis, industry competitor’s analysis, and the key success factors for the industry. 3.1. General Environmental Analysis In order for a firm to effectively compete in an industry, an analysis of its specific industry must be undertaken. This is done to provide the firm with a description of the elements in society that directly effect the industry and the direction managers must take to implement appropriate strategies to survive. This study is commonly referred to as the general environmental analysis. It primarily consists of six primary factors, which are political/legal, economic, socio-cultural, demographic, technological, and global. These six sections describe the external environmental factors a firm must understand to effectively compete in a specific market. 3.1.1. Political/Legal Factors The politics of many countries have a direct effect on the operations at a waste disposal company. Since this industry disposes of waste that ranges from curbside consumer waste to industrial toxic waste, any new laws and regulations that concern the industry can have a drastic economic impact on the company’s bottom line. The US Government has instituted many laws and regulations that directly affect this industry. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 14 of 163 There are many environmental, public and occupational health and safety-related statutes that affect the waste disposal industry in the United States. The one act that changed the industry to the form it exists in today was the Solid Waste Disposal Act, as amended, including the Resource Conservation and Recovery Act of 1976. Many companies changed drastically to adhere to these new regulations. When handling the disposal and release of hazardous waste, this is regulated under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. The Federal Water Pollution Control Act of 1972 (The “Clean Water Act”), as amended controls the release of pollutants into streams, rivers, groundwater, or other surface waters. This has the greatest effect on the development and maintenance of landfills. The industry is also regulated by the amount of pollutants that are released into the environment by the Clean Air Act of 1970, as amended. Since waste management is a very physical operation for many of its employees, their safety and well being are monitored by the Occupational Safety and Health Act of 1970, as amended. This is very important to keep the workers safe and functioning on the job. There are also many specific state and local regulations that are relevant to waste disposal that effect the industry (Waste Management, 2005). These can have as great of effect on the industry as the national standards currently do. In Texas, regulations are already being enforced which relate to the locations of landfills around the state. The new regulations would require wider buffers between dumps and communities, more stringent runoff controls, and the installation of modern liners before garbage can be piled on top of older dumps (Cappiello, 2006). This is a Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 15 of 163 growing trend across the country as more stringent environmental regulations are passed and implemented in the industry. The push for more recycling efforts is also on the rise. This is primarily due to the lack of land for disposal sites and the lack of cooperation by states to handle hazardous wastes. The following, Figure 3.1-1, shows the number of landfills in the US has been decreasing rapidly from 1988 to 2002. This is even more alarming due to the average life expectancy of a landfill only being 26 years. Figure 3.1-1: Number of Landfills in the United States by Year (Source: EPA – Municipal Solid Waste Generation, Recycling and Disposal in the United States, Facts and Figures for 2003) Corporations need to step up and take a leadership role in the disposal of all substances and possibly gain government support for the effort. If this is not done, there could be an increase in illegal dumping around the nation that would have far greater consequences than disposing of these substances properly. In conclusion, the political/legal factors that affect the waste disposal industry are a considerable threat Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 16 of 163 that must be understood and monitored. It is one of the more important factors that affect the industry. 3.1.2. Economic Factors The economy of the US is moving along at a relatively strong pace and is recovering from the recession that began around 2001, primarily due to the dot.com bust in the market and the events of 9/11/01. This has been a slow and tedious recovery. The housing market has been a strong factor in bringing the economy around. The prime lending rate fell for many years, but has now been on a steady increase to help slow and control the rate of inflation. This has been somewhat misleading since inflation has been relatively controlled for the past few years. Figure 3.1-2 shows the prime lending rate as it has fluctuated over the last 50 years. It is remaining relatively low with respect to the past where it had risen to a high of over 21 percent. This is a good measure on how the economy is doing and the amount of money consumers are willing to spend. It also has an effect on larger companies when they borrow for capital projects. If the rate is too high, many companies postpone projects to a later date and growth begins to slow. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 17 of 163 Prime Lending Rate From 1955-2006 25 20 Prime Lending Rate Value 15 10 5 0 /2 19 9 /1 19 1 8/ 7/1 95 /2 /19 0 1/ 8/ 1 72 1/ 5/ 1 74 9/ 7/ 1 80 8/ 9/1 82 7/ 6/ 1 84 /1 /20 9 /2 4 11 2/1 68 7/ 7/1 71 4 /1 3 /1 /19 4 3/ 3/1 74 8/ / 1 5 9/ 2/ 1 76 7/ / 1 7 11 7/ 1 78 3/ 9/ 1 79 6/ / 1 9 10 3/ 1 80 /1 19 0 3/ 6/1 80 2/ 6/ 1 81 1 1 /1 2 5/ /19 6 2 /1 8 1/ 0/2 01 6 12 25/ 95 11 /1/ 99 12 /8 97 11 22 99 31 00 29 97 11/25 97 12 97 15 97 19 97 12 /1/ 98 11 17/ 98 10/22 98 14 98 1 8 00 1 9 2 9 2 9 /2 9 2 9 2 9 2 9 / 9 1 9 1 9 9/ /1/1 9 Date Figure 3.1-2: Prime Lending Rate During 1955-2006 (Source: www.beginnersinvest.about.com – Bank Prime Loan Rate Changes – Historical Dates of Changes and Rates) The Gross Domestic Product (GDP) has also been relatively stable for the last few years. It has maintained a steady rate of growth between two to four percent each quarter for the last couple of years. This shows the output of goods and services has remained steady, with only the US Government spending slowing it down. Figure 3.1-3 illustrates the growth of the GDP of the United States for the past four years. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 18 of 163 Figure 3.1-3: US Gross Domestic Product Percent Growth From 2002-2005 (Source: US Department of Commerce, Bureau of Economic Analysis) The economics for recycling programs is astounding. There are currently more than 56,000 recycling and reuse establishments in the US today. These centers employ approximately 1.1 million people to run the day to day activities that take place. The annual payroll for these employees is around $37 billion, with a gross of $236 billion when it comes to annual revenues. This shows that the number of workers employed in the recycling industry rivals the amount that are currently employed in the automobile and truck manufacturing industry. It is also larger than the waste management and disposal industries. The wages for the industry are actually higher than the national average of all industries (EPA, 2006) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 19 of 163 The demand curve has also been fluctuating for the past years. This is primarily due to the increase in population of the country, the amount of regulation that is being imposed on the industry, the changes in customer’s views on waste disposal, and that the US society leads the industrial world in waste generation. It is estimated that the average US citizen creates around 4.5 pounds of waste per day. This is closely followed by Canada at 3.75 pounds per day (EPA, 2006). This causes a lot of demand to be placed on the waste disposal companies to safely dispose of the waste being generated every day. The higher the amount of waste being generated each day becomes, the more costly it will be to remove it. This shows that the demand curve will most likely shift to the right to keep up with this trend. The increased demand for oil in the world is becoming a supply issue. This is driving the price of oil to all time highs, which in turn does the same for a gallon of gasoline. Gasoline prices are continuing to increase and are currently at prices that have not been seen in the past. Since most waste companies spend a great deal on transportation costs to move the waste from homes or businesses to landfills, this represents a dramatic increase in the costs to conduct business. Currently, gasoline and diesel prices are above $2.50 a gallon and show no signs of decreasing in the immediate future. Until the World’s hunger for oil is stabilized and major oil producing countries are brought under control, this will continue to be a significant burden on the profits of waste disposal companies. This is the key element in the economic factors that affect the industry. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 20 of 163 3.1.3. Sociocultural Factors The view of the consumer with respect to waste disposal is a major factor in the survival of a company in this industry. The attitudes and values of the consumer can affect all other factors in the general environment. The views of the consumer towards industrial institutions and the environment are elements in the change and reform that occur in the government. Since the waste industry is a predominant figure in the United States, it has been a target for environmental groups and government regulations for many years. This will only increase as prices for waste disposal increase and the countries population continues to rise. The increase in environmental activism is a force that needs to be considered. Anything the waste industry attempts to create and implement needs to be viewed by the public as morally and ethically proper and follows the beliefs of the consumer. Otherwise, it will be rejected by a majority of the population and government regulations might even stop the program entirely. The US is becoming more of a recycling nation, but many individuals will only change if they are forced to do so. This is primarily where recycling fails in some communities. If it costs the consumer no additional funding, time, or effort to just throw everything away, they believe there is no reason to change. There are some programs that offer incentives for individuals and corporations who do recycle on a daily basis. This includes lower costs for programs that charge consumers for the weight or the amount of trash they dispose of. These are considered ‘Pay As You Throw’, or PAYT programs (EPA Website, 2006). There are also huge tax incentives for companies that are considered ‘green’ operators and recycle on a large scale. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 21 of 163 A new environmental push is for what is called “Zero Waste America.” Zero Waste is defined as “recycling of all materials back into nature or the marketplace in a manner that protects human health and the environment” (Zero Waste America, 2006). This is a noble cause, but is somewhat unrealistic at this time. There is too much waste being created and a lack of concern by consumers and industries, along with deficient governmental support, to make the change. It is going to be a push by waste disposal companies to spearhead this effort if there is any chance of it succeeding in the future. Sadly, most individuals will not change their habits until they are forced to do so. The sociocultural factor shows the need for an increase in the recycling programs across the national and the need for increased participation by residential and commercial customers. 3.1.4. Demographic Factors The primary purpose for a waste disposal company is to service its customers, mainly residential consumers, but also includes commercial and industrial customers. This makes it important for the company to understand the demographics of many areas in order to determine how to effectively service these areas. The firm also needs to know the commercial aspects of an area since this is also a section that many companies service. Population is a very important factor in determining where a waste disposal company should operate. The key is the more people in an area, the greater amount of waste they will produce. The population of different regions of the country is monitored to help determine which areas would be profitable to expand into. Currently, the population of the US is over 295 million people. This is crucial since individual Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 22 of 163 consumer trash collection is a major portion of the business of a waste disposal company. The United States is known for its acquisition of many material goods. It is also known as a society that throws damaged or broken items away and buys new ones, since this is usually drastically cheaper than trying to repair the items. This causes a large deal of waste to be created and the need to dispose of it. The population is expected to grow at a rapid pace. The country is forecasted to gain almost 100 million people by the year 2050 for a grand total of 394 million individuals. The World is also expected to increase in population from its current value of around 6.5 billion people to more than 9 billion in the year 2050 (United Nations Population Division, 2004). This illustrates the fact that there will be a dramatically increased need for waste disposal companies around the world. The following, Table 3.1-1 illustrates the increase in the worldwide population between the years of 2005 and 2050, in five year increments. Year Population 2005 6,464,750,000 2010 6,842,923,000 2015 7,219,431,000 2020 7,577,889,000 2025 7,905,239,000 2030 8,199,104,000 2035 8,462,265,000 2040 8,701,319,000 2045 8,907,417,000 2050 9,075,903,000 Table 3.1-1: Worldwide Population Figures Estimated for the Years Between 2005 to 2050 in Five Year Increments (Source: US Census Bureau, 2006) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 23 of 163 With the aging of the baby boomers and their increased need of medical care, this will cause a substantial increase in the amount of medical waste that is created. This is currently being handled by only a handful of firms and will need to be expanded in the near future. It is estimated that there are 78.2 million baby boomers living in the country as of 2005 (US Census Bureau, 2006). This is also the fastest growing segment of the population around the World and is projected to increase through 2025. This is shown below in the following two Figures, 3.1-4 and 3.1-5. Figure 3.1-4: Change in the Elderly Population and Total Population by Region: 2002-2025 (Source: US Census Bureau, International Programs Center, Global Population Composition 2002) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 24 of 163 Figure 3.1-5: Elderly Population (Ages 65+) as a Percent of the Total Population by Country: 2025 (Source: US Census Bureau, International Programs Center, Global Population Composition 2002) The elderly is a section of the population that could contribute a substantial amount of waste in society. This is not only medical waste, but personal possessions as well. As they begin passing away, something will have to be done with their personal possessions. Many things may go to family members, but a lot will probably be thrown out. This includes some of their homes that may be relatively old in age and would be better torn down than renovated. This could be a rather large problem to deal with. Today, there are more people living in areas that are prone to natural disasters. There is also an increasing problem that is unfolding in the US, which is the dilapidation of the cities and structures around the country. This could create a large amount of construction debris, demolition debris, and debris from structures destroyed by storms and other environmental catastrophes. This will either need to be recycled, or a large Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 25 of 163 amount of landfill space could be used. These phenomenons are steadily increasing around the world, which will force the industry to follow the correct path. Due to the changes in demographics that are expected to take place in the near future, there will be a large increase in the amount of waste generated and the capacity of landfills will continue to diminish at an alarming rate. 3.1.5. Technological Factors With the amount of regulations and environmental laws that exists and are being created on a daily basis, new methods of waste disposal is in drastic demand. No longer is it as simple as digging a hole, burying the waste, and then forgetting about it. With the decrease in disposal locations and the increase in waste production, this is becoming an alarming problem in today’s society. There are many methods in use today to combat this growing issue. The creation and maintaining of landfills is a daunting task due to today’s regulations and laws that govern them. It is becoming increasingly difficult to gain permits to create landfills across the country. Companies in waste disposal must create new methods of removing and disposing of waste products. Many have created clean incinerators that burn the trash for power. Generators are powered by the burning trash to create electricity. The smokestacks are filters that remove a large portion of the pollutants before they reach the atmosphere. Figures 3.1-6 and Table 3.1-2 show the percentages of materials that are used in combustion for the generation of electricity and show the overall amount of trash that is recovered on a yearly basis. The amount of trash is then divided into the methods that are used to dispose of it. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 26 of 163 Figure 3.1-6: Management of Municipal Solid Waste in the United States - 2003 (Source: EPA – Municipal Solid Waste Generation, Recycling and Disposal in the United States, Facts and Figures for 2003) Table 3.1-2: Generation, Materials Recovery, Combustion, and Discards of Municipal Solid Waste, 1960-2003 (Source: EPA – Municipal Solid Waste Generation, Recycling and Disposal in the United States, Facts and Figures for 2003) Even the landfills are contributing to the creation of energy from trash. The gases that are omitted from the decaying solid waste is captured and stored in tanks for power generation. There are generating plants near landfills that create enough power to provide electricity for small towns and cities. This has become a cheap and Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 27 of 163 economical way to produce small scales of electricity and conserve the fossil fuels that are currently being used. Due to the number of landfills decreasing at an alarming rate, this generation may not be able to spread to large areas of the country. The most common and well known technology for decreasing the amount of waste placed into landfills will be recycling. This is becoming a very profitable industry due to the increased support that is being provided by the government and the consumer. With the price of raw materials continually increasing, it is now becoming even more cost effective for companies to use recycled materials than it is to bring in and process raw materials. Waste disposal companies are also seeing the benefits. The companies that recycle enjoy an increase in public perception and less regulation and protests from governments and environmental groups. Everyday, many more products are able to be recycled due to technological advances in the industry. The ultimate goal is to become a waste free society and cease the wasteful practices of just throwing everything away and forgetting about it. With the rise in oil prices, this is directly affecting the everyday operations of a waste disposal company. The biggest cost of the companies competing in this industry is the fueling costs associated with the massive fleet of trucks needed to transport the waste to disposal sites. This is an issue that urgently needs to be addressed. Companies are updating their truck fleets to run on the more clean burning natural gas than on diesel fuel. The trucks are also being equipped with a more advanced mechanical system to help in the disposal of the waste. This consists of arms and hooks that grasp on to the waste can, lifts it up, and dumps it in the back of the truck. This helps slow down and eliminate the loss of time and productivity when an employee Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 28 of 163 claims disability pay by decreasing the amount of manual labor the employees must conduct. Increased technological advances will improve the handling of waste and increase the life expectancy of landfills. This new technology will also increase the fuel efficiency of its transportation fleets. The recycling efforts by consumers will be increased due to advances in the handling and processing of these materials. 3.1.6. Global Factors The global segment is one of constant change due to government actions and events that are occurring on a daily basis. Solid waste disposal is an issue for every individual around the world, no matter what country they live in. It is an established industry in many of the industrialized nations around the world. This is due to its existence dating back over 100 years. This makes it very difficult for firms to break into these markets and become a successful competitor. There will always be a demand for this industry for the foreseeable future, but many changes are being initiated on a daily basis. These changes are primarily due to the governments of the world imposing stricter laws and regulations that are created to regulate the waste disposal industry. There are also many countries around the world that are developing a rapid pace, sometimes outdistancing the governments trying to serve them. This factor is beyond the scope of this analysis, since the primary areas of concern are the United States and Canada. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 29 of 163 3.1.7. Summary of the General Environmental Analysis The general environment is a force that must be strongly considered for waste disposal companies to survive in their industry. The biggest force that weighs heavily on the industry is rising fuel costs and government regulations and that can change the industry in a short period of time. There are many opportunities to be found in this industry and they mostly outweigh the threats. Economically and technologically, the biggest impact will be fuel costs. The price of oil will no longer be at the low levels most of us enjoyed. The demand has become too great to make this happen. This will continue to be a large portion of waste disposal companies costs, unless they take advantage of new types of fuel that are coming available. This will ultimately show the leader in the industry with respect to driving down costs and increasing revenue. The political/legal has a strong affect on the industry. As pollution increases and there is a larger consumer push for reform, the political powers will ultimately shape the industry. The only way this will not happen is if the companies participating in this industry make changes before they are forced to. This could place them ahead of the competitors when the changes are forced to occur. The sociocultural segment will also play a role in this, primarily due to the voice of the consumer and the citizenry. The only time political forces implement new laws is when the public demands a change. People are still a powerful force in all democracies. The global and demographic segments round out the rest of the environmental analysis. With the rise of the world population and the attitudes towards waste, waste disposal will continue to become a gigantic force to contend with. This not only relates Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 30 of 163 to solid wastes, but also to medical, toxic and chemical wastes, which will all continue to grow as the population grows. The medical waste is going to increase due to the growing number of baby boomers in the US and elderly around the world. It appears that waste disposal will continue to be a problem for many years to come. 3.1.8. Driving Forces for the Future There exist primary driving forces for the industry and waste disposal companies in order for them to be successful in the future. These forces are outside of the firm and can change the strategy of the industry and organizations over time. Managers must be aware of these driving forces that shape the industry in the future, or they will not be prepared when the actual changes begin to take place. With the increased demand in waste disposal and recycling services, the major driving force that will affect the industry is the rising fuel costs for the transportation fleets. Since most waste disposal services are considered transportation companies, one of their largest expenses is fuel for the vehicles in their fleet. This can spawn a decrease in overall revenue, an increase in operating costs, and increases in billing prices to the residential and commercial customers. This is primarily being driven by the extremely high oil price that exists in today’s market. A second driving force that exists deals with the way wastes are currently being handled. With the increase in stringent environmental regulations, the reduction in the number of existing landfills, and the decrease in the permits for new landfill locations, the industry is being forced to change to more environmentally friendly methods for the management of waste. This is increasing the drive for increased recycling efforts across the nation and new efforts to reduce the amount of waste being generated. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 31 of 163 These driving forces encompass all of the general environmental factors that were previously discussed. It is very important that these forces are taken seriously by all companies in the industry if they wish to be profitable and continue to grow in the future. 3.2. Industry Analysis For the waste disposal industry a through understanding of the industry environment as a part of the external influences serves as an important step towards proper strategy formulation. Generally, the industry environment has a more direct impact upon an organization than the external environment as a result of the nature of competition. Competition within an industry among a group of companies leads to competitive actions and competitive responses that affect the strategic position of a particular organization and the profit potential for the industry as a whole (Hitt, Ireland, & Hoskisson, 2005). This is no different for waste disposal companies competing within the environmental services industry. 3.2.1. Industry Description We live in a society where almost anything produce is viewed as disposable by the consumer and industries. The collection and disposal of this waste is becoming a monumental problem, mainly due to the extreme amount of waste that is produced around the world. It has been estimated by the EPA that each man, woman and child in the United States generates around 4.4 pounds of solid waste every day. This relates to hundreds of millions of tons of trash produced every year, just in the United States. The waste management industry primarily disposes of two types of waste: municipal Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 32 of 163 solid waste and hazardous waste. The biggest sector deals with the disposal of solid waste. The main categories of municipal solid waste include household, commercial, business, institutional, special waste, construction debris, demolition debris, regulated medical waste, yard waste, sludge, and scrap tires. Hazardous waste is toxic chemicals that burns readily, are corrosive, or are explosive. The most common industries that generate this type of waste consist of exterminators, hospitals, auto repair shops, petroleum refiners, and chemical manufacturers, to name a few. The waste disposal industry is formally categorized according to the SIC code as 4956 - Refuse Systems and from the NAICS code as 56211 – Solid Waste Collection. A critical driver or key success factor that characterizes the industry resides from an organization obtaining economies of density as a result of the heavy laden fixed asset infrastructure required to operate. The following description highlights the overall processes surrounding the management of municipal solid waste (MSW). Refuse system/solid waste collection The process for MSW management is accurately described as a reverse-flow channel since materials are moving in a backward motion (Kotler, 2003). Commercial motor vehicles are dispatched for the collection of solid waste. The collection commercial motor vehicle trucks either proceed directly to landfills for disposal or are directed to a transfer station. Landfills for MSW are not the only option for managing refuse. The use of recycling and incineration help to offset landfills as the only means for handling MSW. This slows down the velocity of MSW ending up in landfills thereby extending the active life of the disposal sites. Additionally, waste-to-energy (WTE) programs in the industry provide meaningful usage of MSW. Such programs include Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 33 of 163 the use of gases emitted from landfills as an energy source. Also MSW is processed by WTE plants for the use of energy. 3.2.2. Industry Operations Major operations are waste collection, disposal, transfer, and recycling. Waste collection accounts for about 55 percent of industry revenue, disposal in landfills is 20 percent, and recycling for 15 percent. The refuse volume breakdown is 55 percent in landfills, 30 percent recycled, and 15 percent combusted (Thompson Gale, 2006). Small companies usually operate in only one of these segments. Larger companies often have vertically integrated operations that include all of these components. Collection Collection consists of large fleets of trucks and way stations that collect and consolidate the refuse for disposal in the landfills. The collection trucks are specialized vehicles designed to pickup refuse and compact the waste. There are four basic models of garbage truck. Front loaders generally service commercial and industrial sites. They have large prongs on the front which are carefully aligned with arms on the dumpster. The dumpster is then lifted over the truck, until it is upside-down and the trash will then fall out into the receptacle. Rear loaders commonly service residential areas. They have an opening at the rear that a trash collector can throw garbage bags or empty the contents of trash cans into the truck without the operator having to lift the waste by hand. The rear loader is usually equipped with some type of compactor that will compress the garbage, and move it towards the front of the vehicle. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 34 of 163 Side loaders are versions of either front or rear loaders that lift small trash containers or have openings on either side to deposit trash. Some side loaders are equipped with a mechanical remote-control arm that grasps a trash container such as a wheeled bin and empties it into the truck in the same manner as front loaders. Pneumatic collection is a truck as a 24 ton vacuum cleaner. On the top it has a crane with a tube and a mouthpiece that fits in a hole, usually hidden under a plate under the sidewalk. From here it will suck up garbage from an underground installation. The system usually allows the driver to "pick up" the garbage, even if the access is blocked by cars, snow or other barriers. There are also larger trucks that carry trash over long distances which are usually modified dump trucks. Garbage trucks empty their trash in landfills. Most rear loaders lift the rear section so that the garbage will spill out. Front loaders more commonly have a moving wall that pushes the garbage out. Some larger landfills will have large contraptions that tip the entire truck, thus allowing the trucks to not have to carry their own method of emptying the garbage. Landfills A landfill consists of operations, leachate management, water quality sampling, and quarterly monitoring reports. Operations planning for solid waste landfills including site life estimates fill sequencing, winterization plans, scheduling of new cell design and construction. This is after landfill design has been completed and geo-technical/ slope stability analyses performed. Leachate management is the evaluation, design, and construction of leachate re- circulation systems to enhance degradation of wastes. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 35 of 163 Water Quality Sampling is the collection and analysis of groundwater samples at solid waste landfills. Quarterly Monitoring Reports are preparation of quarterly groundwater monitoring reports for solid waste landfills including statistical evaluation of data. Landfill permits (preliminary and final closure plans), environmental impact analyses (CEQA), storm water management (NPDES), air quality permits, and construction/operation permits has to be approved by local governments along with adhering to federal government guidelines. Recovered landfill gas can be converted into energy. This is in the form of electricity, steam, heat, and vehicle fuel to reduce America’s dependence on petroleum products. The continuing development and management of landfills will grow in to the next century. Transfer Waste is deposited at transfer locations from smaller collection trucks and loaded onto large transports. The large transports move the refuse to the landfills. This is a means of optimizing the process of moving refuse to the final destination, the landfills. This also increases the efficiencies in operations. Recycling Recycling is more firmly entrenched than ever. Recycling and composting activities prevented about 64 million tons of material from ending up in landfills and incinerators. Today, this country recycles 28 percent of its waste, a rate that has almost doubled during the past 15 years. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 36 of 163 While recycling has grown in general, recycling of specific materials has grown even more drastically: 42 percent of all paper, 40 percent of all plastic soft drink bottles, 55 percent of all aluminum beer and soft drink cans, 57 percent of all steel packaging, and 52 percent of all major appliances are now recycled. Twenty years ago, only one curbside recycling program existed in the United States, which collected several materials at the curb. In 2001 there are 9,000 curbside programs and 12,000 recyclable drop-off centers across the nation. This includes 480 materials recovery facilities that have been established to process the collected materials. The recycling program in New York City is collecting paper at the curbside. This is because it is clearly cost-effective. After getting better prices from the commodity markets, the city reintroduced multi-material curbside recycling. Last February when New York City's Independent Budget Office noted that the increase in the cost of waste disposal, coupled with higher recycling levels, could make recycling into “the cheaper alternative, creating a strong incentive to promote recycling as a way to hold down the total cost of waste management.” Recycling is paying with the increase costs of aluminum, paper, plastic, and glass. 3.2.3. Industry Life Cycle In the U. S. the solid waste industry generated more than $43 billion in revenue in 1999. In total, the U.S. solid waste industry managed approximately 545 million tons of waste in 1999. The breakdown is, (about 374 million tons, or 68 percent) was land filled, 31 million tons, (5 percent) was incinerated and 140 million tons, (27 percent) and was recycled. This increased 28% over the last 10years. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 37 of 163 The life cycle of the Waste Industry is exponential in growth. There seems no end to the refuse that consumers and industry want removed. The market looks excellent for years to come because there is no incentive to decrease the refuse. This is illustrated below in Table 3.2-1. Business Sector Revenues Employees Facilities Equipment Tons (billion) Owned Owned Managed (millions) Publicly Traded $20.6 119,500 1,840 66,100 218,700 Companies Privately Held $12.4 151,700 6,430 101,400 158,200 Companies Public Sector $10.3 96,600 7,470 38,800 167,800 Total $43.3 367,800 15,740 206,300 544,700 Table 3.2-1: United States Solid Waste Industry Summary (Source: National Solid Waste Management Association, 2001) 3.2.4. Industry Dominant Economic Features The revenues solid waste industry generated is estimated to be $43 billion. Approximately 76 percent of this amount was generated by the private sector. The relative size of the industry directly accounted for roughly one-half of one percent of the nation's gross domestic product (GDP). The industry's industrial output and employment were larger than the individual economics of several such states as North Dakota, Vermont, and Wyoming. The economic impact of the industry contributed over $96 billion, 948,000 jobs, and just over one percent of U.S. GDP to the nation's economy. This included all direct, indirect and induced effects resulting from solid waste industry activities. For every dollar of revenue generated by the industry, a total of $1.23 in additional revenue was generated in the economy through the multiplier effect. The solid waste industry Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 38 of 163 employed approximately 367,800 people. Total industry compensation, including benefits, was estimated at $10 billion. Based on these figures, employees in the solid waste industry were paid an average of $27,200 per year, including benefits. Similarly, for every job in the solid waste industry, the multiplier effect created an additional 1.58 jobs outside the industry. 3.2.5. Market Size Research on the United States waste industry is valued at $ 44 billion in 2004 according to the research firm of Chartwell Information. The break down is as follows: collection services are 58% ($25.5 billion), disposal services generated 30% ($13.5 billion) and processing accounted for 12% ($5.3 billion). The National Solid waste Association estimates that there are 15,500 organizations solely in the business of hauling waste. There are 11,500 firms owned approximately 15,700 facilities that disposed of, recycled, incinerated or processed solid waste. The majority of these operations were very small. The nation’s top three firms are Waste Management, Allied waste Industries, and Republic Services. The top three companies combined for a total of 20 billion in revenues and representatives nearly 50% of the waste disposal market. 3.2.6. Market Growth Rate The market growth for solid waste in the United States is 4.30% per year for the years 2003 and 2004. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 39 of 163 YEAR $ Billion % Growth 2001 38 4.00 2002 40 4.2 2003 42 4.3 2004 44 4.3 Table 3.2-2: United States Solid Waste Industry Growth Rate (Source: Valuline, 2006) 3.2.7. Industry Trends The current trends in the market place are being dominated by the federal government. The solid waste landfills dominant disposal position has created two policies. The first one is encouraging bioreactor technology research. The second one is rewarding owners who develop landfill gas-to-energy and waste-to-energy projects with tax credits. The resulting bioreactors could eventually help 80% of today's landfills use their airspace more wisely. The tax credits should be able to boost renewable energy project development. Legislation is moving the processing and recycling sector of the industry also. Communities that have been recycling for some time are finding it difficult to raise their diversion rates. Many are imposing disposal bans on specific types of waste to be recycled, such as e-waste. Overall garbage collection is becoming more difficult, not easier. Cost increases in fuel, tires, and trucks and insurance are forcing haulers to be more efficient. Haulers also are facing employee pressures. Metro area workers such as those in Atlanta and Los Angeles have discussed forming unions. New federal rules regarding training requirements, seat belts and idling limits are adding to the costs. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 40 of 163 3.3. Five Forces Analysis In order to better understand the environment in which waste disposal companies operate, an analysis will be conducted using Michael Porter’s Five Forces Model (Hitt, Duane, & Hoskisson, 2005). These factors are important, as they affect the company’s ability to serve its customers and make a profit. A change to any of these forces should cause the company to re-evaluate the marketplace. The five factors, shown in Figure 3.3-1, consist of threat of entry, power of buyers, power of suppliers, threat of substitutes, and competitive rivalry. Figure 3.3-1: Porter’s Five Forces Model (Source: EPA http://www.themanager.org/Models/p5f.htm ) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 41 of 163 3.3.1. The Threat of Entry The threat of entry by new competitors in the waste disposal industry is considered to be low. New entrants must overcome regulatory and legislative barriers before they can compete in the waste market. At this time, there is no real threat of new entrants into the market. This is due to two factors. The first is the control of landfills. There are a few large companies in the industry that control the majority stake of all landfills. This creates an almost impermeable barrier for anyone entering the market. Whichever company controls the landfill sites in a geographic market, that firm has an advantage over the entire waste disposal market. It would be a challenge for competitors to obtain a new landfill site because of government regulations and residents in the proposed area. The second factor that slows entry into this market is the fact that many of the larger firms operate under the strategy of acquiring new entrants in the market. This makes it very difficult for smaller entrants in the market to effectively compete and grow within the market. There is always the fear that the smaller firm will be overtaken by one of the larger competitors in the industry. There are also restrictions due to the amount of capital that is required for the smaller firms to participate in mergers and acquisitions, in order to compete with the major firms in the industry. 3.3.2. The Power of Buyers The power of buyers in the waste disposal industry is moderate to low. Consumers in the past have had little bargaining power, but this is beginning to change. Most agreements and contracts are negotiated with state and local government Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 42 of 163 agencies. Many communities are allowing consumers to choose their own waste collection service and the cities are instituting a ‘hands off’ approach to their operations. This is creating an affordable and formidable substitute to removal of waste. Consumers no longer have to abide with the contract that is accepted by the city government and are able to make their own choices. High switching costs can lead to low buyer power. This is primarily seen when a city government is running the program. If a government entity wants to switch refuse companies, the length of time involved is sometimes two to five years before a new bid is released. It would cost the government a considerable amount of time and money in the effort to switch refuse collection companies. 3.3.3. The Power of Suppliers In evaluating the power of suppliers, it was found to be low to moderate. Suppliers in the value chain are relatively few, but important. The larger waste disposal companies own their own not-for-hire fleet of trucks in the United States; therefore, the truck suppliers, as well as fuel providers, can significantly impact the profits of the industry. The supply of waste disposal vehicles is in somewhat of an abundance due to the amount of companies entering the supply chain to offer customized trucks for specific firms in the industry. The waste disposal companies possess a certain degree of bargaining power over suppliers of these vehicles due to large volume of the purchases that waste disposal companies make every year. While the supply of transportation is accessible, the availability of land for landfills is not. It has been more and more difficult, due to government regulations and consumer opposition in the process of obtaining land for additional landfills. It is even Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 43 of 163 more difficult to obtain land in a favorable location in order to minimize the costs of transportation. 3.3.4. The Threat of Substitutes The treat of substitutes in the waste disposal industry is considerably low. Trash is not something often thought about, until it is not picked up. What other disposal options do consumers have? While recycling has become more popular, according to David Steiner’s interview with the History Channel (April 23, 2006), recycling is not as profitable as disposal. With the strict environmental regulations, customers have few options for trash removal and disposal. Environmentalist may eventually have an impact and recycling may become more profitable, but at the current time, trash disposal options are very limited. 3.3.5. Competitive Rivalry The waste disposal market is one that is very high when it comes to competitive rivalry. The companies in this industry compete in a highly competitive market. These firms face intense competition from governmental, quasi-governmental and private sources in all aspects of its operations. In North America, the industry consists of large national companies and small regional and local companies. There are also government entities that operate in the industry in small counties and municipalities. Counties and municipalities have advantages financially since tax revenues are accessible to their operations, including tax-exempt financing. In the past, larger firms in the industry have aggressively sought to purchase local and regional competitors in order to reduce the competition. These major corporations have an advantage since they own most of the Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 44 of 163 landfills in the country and control a majority of the market. The main competition arises when competitors bid lower for a community waste disposal contracts. The larger companies risk losing a share of that market when this occurs. Much of the competition is based strictly on price, because other than customer service, there is a low level of product differentiation in the services delivered. 3.4. Industry Competitive Analysis The waste disposal business is a mature business characterized by a relatively stable customer base. Competition is driven by local economic and demographic factors as well as fluctuations in capacity utilization, in both the collection and landfill business. Customer service satisfaction levels industry-wide are very high since the collection customer has a very low tolerance for poor service. The following will provide a summary of the major competitors in the industry and how their strategic moves affect Waste Management, Inc. and the rest of the industry. 3.4.1. Industry Competitors Waste Management, Inc. is the industry leader. The reason that it is number one is because of the large amounts of resources it controls. Waste Management owns roughly 290 landfills, 138 material recovery facilities, 85 beneficial-use landfill gas projects, and 17 waste-to-energy plants. This is a considerable amount of resources when compared with the other competitors in the industry. While the industry has a vast amount of competitors, including national, regional and governmental agencies, the main comparison will focus on Allied Waste Industries, Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 45 of 163 Inc and Republic Services, Inc., who are currently the number two and number three competitors in the industry. Allied Waste Industries, Inc. Allied Waste Industries, Inc. (AW) is number two in the industry in terms of revenue dollars and employees. The publicly traded company provides collection, transfer, recycling, and disposal services. Allied Waste operates 169 landfills, 166 transfer stations, and 57 recycling facilities. The company provides disposal services for approximately 10 million residential, commercial, and industrial customers. It operates in 122 major markets in 37 states and Puerto Rico. The company is vertically integrated in the pickup of refuse and delivery to landfill sites. Allied Waste considers the waste collection and disposal business to be a local business. Therefore, the operations’ characteristics and opportunities differ in each of its markets. By combining local operating management with standards for best practices, Allied strives to standardize the common practices across the company. This is done while maintaining the day-to-day operating decisions at the local level, which is closest to the customer. The company implements this philosophy by organizing the operations into a corporate, region and district infrastructure. Allied’s management believes this model allows them to maximize the growth and development opportunities in each of its markets. This contributes to its ability to operate the business efficiently, while maintaining effective controls and standards over its operations and administrative matters, including financial reporting (Allied Waste Industries, 2005). Allied has grown from a revenue base of 35 million in 1992 to over 5 billion in 2004. This was due to a number of major acquisitions. The first was Laidlaw, Inc. in Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 46 of 163 1996 and then Browning-Ferris Industries followed in 1999. The firm has continued to acquire smaller companies within the waste industry that provide additional infrastructure, such as landfills and transfer stations. This also includes companies that currently deliver refuse into its existing collection stations. Table 3.4-1 shows some of the primary financial ratios to provide more insight to the performance, size, and efficiency of the firm. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 47 of 163 Profitability Profit Margin 3.55% Operating Margin 15.73% Management Effectiveness Return on Assets 4.16% Return on Equity 6.41% Income Statement Revenue 5.73B Revenue Per Share 17.54 Gross Profit 1.99B Balance Sheet Total Cash 56.10M Total Cash Per Share 0.169 Total Debt 7.09B Total Debt/Equity 2.062 Current Ratio 0.584 Book Value Per Share 7.625 Cash Flow Statement Operating Cash Flow 716.60M Levered Free Cash Flow -193.45M Table 3.4-1: Current Financial Information for Allied Waste Industries, Inc. (Source: Allied Waste Industries, Inc. at Yahoo Finance, 2006) During 2005, Allied’s waste organic revenue growth increased 5.0%, offset by an approximately 1% decrease in recycled commodities revenue. The organic revenue growth was driven by increases in average price per unit of approximately 2.2%, including fuel recovery fees, and volume increases of approximately 2.8%. Operating income for fiscal 2005 increased by $29.1 million over the fiscal year 2004. Most of the operating costs increased from volume increases and normal inflation. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 48 of 163 Republic Services, Inc. Republic Services, Inc. is the third largest company in the industry. The company owns and operates 92 transfer stations, 59 solid waste landfills, and 32 recycling facilities. There focus strategy is in the high growth markets throughout the Sunbelt. The markets of California, Florida, Georgia, Nevada, North Carolina, South Carolina and Texas are included in the Sunbelt region. It also serves markets in 21 states. The solid waste industry experienced a period of rapid consolidation in the late 1990’s. During that time Republic was able to grow significantly through acquisitions. However, acquisitions in the industry have slowed considerably since late 1999. Despite this, the company believes that the opportunity to grow through acquisitions still exists, albeit at a slower pace than experienced in previous years (Republic Services, 2005). The company has continued to reinvest in its existing fleet of vehicles, equipment, and landfills. This strategy is a “Grass Roots” internal strategy for growth. Its business is built by increasing the customer base and expanding existing landfills. A key component of Republic’s financial strategy, as well as the other competitors in the industry, is the ability to generate free cash flow. Republic believes that free cash flow is a driver of shareholder value and provides useful information regarding the recurring cash provided by its operating activities after expenditures for property and equipment. Free cash flow also demonstrates management’s ability to execute its financial strategy. Consequently, Republic has developed incentive programs and conducts monthly field operating reviews that help focus the entire company on the importance of increasing free cash flow. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 49 of 163 If the company is unable to identify opportunities that increase growth, it intends to continue to use the free cash flow to repurchase shares of common stock at prices that provide value to its stockholders. As of December 31, 2005, the company had repurchased a total of 51.5 million shares, or approximately 29% of its common stock outstanding at the commencement of its share repurchase. In January 2006, the board of directors authorized the repurchase of up to an additional $275.0 million of its common stock. Republic believes, as does Waste Management, that its share repurchase program will continue to enhance stockholder value. Table 3.4-2 shows some of primary financial ratios to provide more insight to the performance, size, and efficiency of the firm. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 50 of 163 Profitability Profit Margin 8.86% Operating Margin 16.66% Management Effectiveness Return on Assets 6.62% Return on Equity 14.59% Income Statement Revenue 2.86B Revenue Per Share 20.112 Gross Profit 1.06B Balance Sheet Total Cash 131.8M Total Cash Per Share 0.959 Total Debt 1.48B Total Debt/Equity 0.919 Current Ratio 0.723 Book Value Per Share 11.586 Cash Flow Statement Operating Cash Flow 767.50M Levered Free Cash Flow 497.63M Table 3.4-2: Current Financial Information for Republic Services, Inc. (Source: Republic Services, Inc. at Yahoo Finance, 2006) The current trend toward consolidation in the solid waste services industry is further supported by the increasing tendency of a number of municipalities to privatize their waste disposal operations. Privatization of municipal waste operations is often an attractive alternative to funding the changes required by Subtitle D of the Resource Conservation and Recovery Act of 1976. Privatization of municipal waste operations is Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 51 of 163 a threat and an opportunity to all public companies that currently operate in this industry. 3.4.2. Anticipated Competitors Strategic Moves Allied’s business strategy is aimed at increasing revenue and earnings through profitable growth, improving returns on invested capital, and maximizing free cash flow to repay debt. The components of the firm’s strategy include operating as a vertically integrated, non-hazardous solid waste service business. Allied implements a best practices program throughout the organization and manages its businesses locally with a strong operations focus on customer service. Through market rationalization, they maintain and improve their marketing position. By maintaining the financial capacity and effective administrative systems and controls, this helps support on-going operations and future growth. There is also an accelerated move to purchase new waste collection trucks to offset near term maintenance costs. This will provide the firm a more advanced and generally new fleet of trucks to compete with others in the industry. These new trucks may also bring about new methods of collection that will provide increased amounts of waste to be gathered and disposed of at a faster rate then their competitors. Allied Waste also follows the same corporate strategy as Waste Management. The industry is mature, so growth is either organic or by mergers and acquisitions. In the fourth quarter of 2005, the company realigned its geographic operating regions from nine to five, as well as reallocated resources in an attempt to be more operationally efficient. The further optimization and consolidation of their resources will allow them to Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 52 of 163 gain an advantage over Waste Management, who is currently operating on a much broader scale. Republic’s operating strategy seeks to leverage existing assets and revenue growth to increase operating margins and enhance stockholder value. Its operating strategy to accomplish this goal is to utilize the extensive industry knowledge and experience of our executive management. The company will institute a decentralized management structure in overseeing the day-to-day operations that take place. There will be integration of their waste operations to improve operating margins through economies of scale, cost efficiencies and asset utilization. This helps to achieve high levels of customer satisfaction. The firm also utilizes systems to improve consistency in financial and operational performance Republic has presence in high growth markets throughout the Sunbelt and in other domestic markets that have experienced higher than average population growth during the past several years. This supports the company’s internal growth strategy. Republic believes that its presence in these markets will provide opportunities for the company to experience growth at rates that are generally higher than the industry’s overall growth rate. This could drastically increase the competition in certain markets where Waste Management operates; ultimately losing some of these markets if the competition is too fierce. 3.4.3. Summary of Competitive Analysis Waste Management, Inc. exists in an industry that has many competitors in all sizes of markets. There are currently two primary companies that compete with WMI in many different areas of operation. Due to the decline in the number and occurrence of Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 53 of 163 mergers and acquisitions, there is a greater need for internal organic growth. There is also a need to update their current trucking fleets to take advantage of recent technologies. This will help reduce the collection costs and the amount spent on fuel and maintenance for their fleets. This plan strives to increase the efficiency of the high asset infrastructure that is indicative of the industry. 3.4.4. Key Success Factors There are several key success factors that are critical for a company in this market to succeed. These include the use of research and development technology in the waste industry to improve service and minimize environmental impact. This technology can help extend the life of their current trucking fleets and find new ways to decrease the amount of expenses due to rising fuel prices and maintenance costs. This new technology could also be used to increase the efficiencies of the day to day operations of the firm. New software programs could help determine what portions of the industry need to be advanced. This could relate to the development of future methods of waste disposal to increases in customer service across all markets of competition. With the market and government regulations demanding more environmentally conscious services, there is an increased need for ‘Greener’ methods of waste disposal. Since the lack of landfill space is becoming a major concern, the processes for waste disposal need to be upgraded and expanded upon. This will include the increasing need for recycling and waste-to-energy programs. By creating new programs that increase efforts in recycling and yard waste disposal, this will increase the amount of current landfill space and slow down the filling of these sites. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 3.0 – External Analysis Page 54 of 163 3.5. Summary of External Analysis The solid waste management industry provides a vital public service that often goes unseen and operates in the background. The service performed ensures the health and safety of citizens across America. The demand on the industry depends on the volume of waste generated, which depends on the level of economic activity and consumer spending. The profitability of individual companies depends on efficient operations, because the service is a commodity solely based on price. Big companies have large efficiencies of scale in operations. Small companies can compete successfully by offering specialized services or serving local markets. Waste management involves primarily the collection, transfer, and disposal in landfills of non- hazardous, solid waste. Companies may also handle and treat hazardous, low-level radioactive, and liquid wastes. The business is conceptually simple: trash is collected from businesses, industrial sites, and residences, and is buried. Waste management is closely related to a number of issues such as urban lifestyles, resource consumption patterns, jobs and income levels, and other socio-economic/cultural factors. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 55 of 163 4.0 Internal Analysis The internal analysis is a very important in determining the core competencies that exist within a firm. These are the firm’s competitive advantages. The internal analysis evaluates the capabilities and resources that a firm possesses which relates to achieving core competencies. This helps to develop solutions and creates a competitive advantage in the industry. This ultimately provides a strategic competitiveness the company can use to ensure a profitable future. The analysis consists of an organizational analysis, the analysis of the firm’s resources, the objectives of the firm, and an evaluation of its financial performance. This ultimately leads to a strategic and value chain analysis and concludes with a SWOT analysis for the firm. 4.1. Organizational Analysis Waste Management, Inc. is the leading provider of comprehensive waste management and environmental services in North America. It is headquartered in Houston, Texas. The company is successful through strong leadership, environmental services, fleet maintenance, and landfill gas projects. This section evaluates Waste Management’s organizational structure, resources, strategies, objectives and financial performance. 4.1.1. Corporate Vision and Mission Waste Management’s primary goal is to have a focused, world-class supply base firmly in place and readily accessible, producing a sustainable competitive advantage in Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 56 of 163 every corner of their business. It plans on accomplishing this by developing and delivering meaningful business results. The firm will identify and pursue real business opportunities to help solve current business problems. They also plan to develop loyal, skilled, productive, and innovative suppliers. Waste Management will implement and continually upgrading the best processes, systems, and tools available, while designing, aligning, and building an organization of highly skilled, business-oriented procurement professionals. Their mission statement is: “The Company's primary objective is to maximize stockholder value, while adhering to the laws of the jurisdictions within which it operates and observing the highest ethical standards” (Waste Management, 2006). 4.1.2. Leadership Waste Management’s leadership and management teams have enabled it to become the industry leader. The Corporate Governance Guidelines gives an overview of the Board of Directors’ mission, responsibilities, structure and operations. The Board of Directors has nine members and they are responsible for representing the stockholders, delegating authority to management to pursue the company’s mission, selecting and evaluating the CEO, overseeing the succession plans, determining the compensation of senior management, approving annual budgets, advising management on strategic plans and reviewing systems, procedures, and controls (Waste Management, 2006). Waste Management’s Chief Executive Officer is David P. Steiner, who has a bachelor’s degree in accounting from Louisiana State University and a Juris Doctorate from the University of California in Los Angeles. Under his leadership, the company's focus on the environment and workplace safety continues to yield results. The company continues to deliver a strong business performance. This year, Waste Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 57 of 163 Management has been selected as the winner of the "Corporate Vision Award" from Keep America Beautiful for its ongoing work in environmental stewardship. Also this year, the Wildlife Habitat Council has awarded six of the company's waste and disposal facilities with certifications for environmental excellence (E.J. Ourso College of Business, 2006). 4.1.3. Culture Waste Management is strongly committed to upholding ethical standards and promoting diversity and inclusion. To ensure this, all employees and others performing work on behalf of the company are expected to adhere to the laws and regulations that apply to their work activities and demonstrate ethical behavior in all their decisions and interactions. The company also established a Business Ethics and Diversity Department to oversee implementation of the program. One of the tactics used is ensuring that each employee has a copy of the Focus on Integrity and Inclusion, which is the company’s Code of Conduct. Waste Management’s Environmental Management System (EMS) enables the company to work on continuous improvements in operations by measuring and evaluating its environmental performance. It consists of five components: WM Environmental Policy, Planning, Implementation, Assessment and Corrective Action, and Management Review Process. Waste Management is involved in local and company wide organizations. It also supports many events and celebrations through sponsorship, extending services, or providing employee volunteers. Some of the programs WMI are involved in are America Recycle Day, Rockin the Corps, Earth Day Celebrations, Conference of Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 58 of 163 Mayors City Livability Program, and Wildlife Habitat Council’s habitat management programs (Waste Management, 2004). 4.1.4. Structure Waste Management provides solid waste collection, recycling and disposal options to homes, communities, businesses, and major industries. To help accomplish such tasks, the company owns the majority of Recycle America Alliance and partners with Sharp Compliance, Inc. for needle disposals. It is also involved in many projects regarding converting Waste-To-Energy and Gas-To-Energy (Waste Management, 2004). 4.1.5. Summary of Organizational Analysis Waste Management operates domestically primarily in the areas of waste collections, recycling, and disposals. They participate in many programs and community efforts to enhance their brand image of a ‘green’ company. There have also been numerous awards given to the firm for their environmentally conscious initiatives. The company has great leadership and employee dedication, which is ultimately how it is able to show continuous improvements in its performance. 4.2. Analysis of Firm Resources Resources, capabilities and core competencies are the characteristics that make up the foundation of competitive advantage. Resources are inputs into a firm’s production process and can be classified into three categories: physical, human, and organizational. Capabilities are the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state. Core Competencies are resources Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 59 of 163 and capabilities that serve as a source of a firm’s competitive advantage over rivals. Basically, resources are the source of a firm’s capabilities; capabilities are the source of a firm’s core competencies, which are the basis of competitive advantages (Hitt, Ireland, & Hoskisson, 2005). 4.2.1. Tangible Resources Tangible resources are assets that can be seen and quantified. The four types of tangible resources are financial, organizational, physical, and technological (Hitt, Ireland, & Hoskisson, 2005). Financial: STRONG In 2005 Waste Management repurchased 24.7 million shares of common stock, totaling $706 million. The company produced nearly $2.4 billion in net cash from operating activities and over $1.4 billion of free cash flow. In 2004 the company generated $2.2 billion in net cash from operating costs and over $1.05 billion in free cash flow. WMI’s net cash provided by operating activities has gradually increased from 2002 – 2005. The company credits the recent success to a reduction in income tax return expenditures resulting from favorable tax audit settlements and after-tax charges related to asset impairments (Waste Management, 2006). Organizational: MODERATELY STRONG Waste Management’s primary objective is to maximize stockholder value, while adhering to the laws of the jurisdictions within which it operates and observing the highest ethical standards. The company’s Board of Directors represents the stockholders by following the Corporate Governance Guidelines. These guidelines cover the mission, responsibilities, structure and operations of the board members. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 60 of 163 Waste Management is headquartered in Houston, Texas, but has facilities throughout United States, as well as, Canada and Puerto Rico. It also has facilities in Hawaii and Alaska. The company is geared towards developing and delivering meaningful business results in these areas (Waste Management, 2006). Physical: STRONG Waste Management has the following regional group offices: Eastern, Midwestern, Southern, and Western. The firm also owns the subsidiaries Wheelabrator Technologies Inc in Hampton, NH and Recycle America in Houston, TX. Eastern - The Eastern group office is located in Fairless Hills, PA. It is responsible for CT, DC, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VA, VT and WV. In this region there are 44 landfills and 7 disposal sites. It had total revenue (in millions) of $3,578 in 2004, $3,442 in 2003, and $3,338 in 2002. Midwestern – The Midwestern group office is located in Lombard, IL and is responsible for the following states: CO, IA, IL, IN, KS, KY, MI, MN, MO, MT, OH, ND, NE, SD, UT, WI and WY. There are 71 landfills and 8 disposal sites in this region. It had total revenue (in millions) of $2,698 in 2004, $2,601 in 2003 and $2,616 in 2002. Southern – The Southern group office is located in Atlanta, GA and is responsible for the following states: AL, AR, FL, GA, LA, MS, NC, OK, PR, SC, TN, and TX. There are 81 landfills and 13 disposal sites in this region. It had total revenue (in millions) of $3,480 in 2004, $3,149 in 2003 and $3,105 in 2002. Western – The Western group office is located in Scottsdale, AZ and is responsible for the following states: AK, AZ, HI, ID, CA, NM, NV, OR, CA, and WA. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 61 of 163 There are 36 landfills and 5 disposal sites in this region. It had total revenue (in millions) of $2,711 in 2004, $2,560 in 2003 and $2,506 in 2002. Canadian – The Canadian group office is located Toronto, ON and is responsible for Newfoundland, Nova Scotia, Ontario, Montreal, Quebec, Greater Toronto, SW Ontario, Alberta, Manitoba, Saskatchewan, and British Columbia. There are 12 landfills and 5 disposal sites in this region. It had total revenue (in millions) of $635 in 2004, $573 in 2003 and $524 in 2002 . Wheelabrator – The Wheelabrator Technologies, Inc. office is located in Hampton, NH. There are 4 landfills in this area. It had total revenue (in millions) of $835 in 2004, $819 in 2003 and $789 in 2002 (SEC Info, 2004). Technological: STRONG Waste Management invests time and resources in the development of innovative ideas that are used to address issues surrounding the quality of our earth, air and water. The company joins resources with regulatory commissions, communities, citizens and other companies to seek solutions together. These solutions have come through extensive research in bioreactor landfill technology, waste-to-energy practices, and gas- to-energy practices. Bioreactor landfill technology represents the next generation in landfill design and operational practices. It accelerates the biological decomposition of organic wastes in a landfill by promoting conditions necessary for the microorganisms that degrade the waste. In practice, this is accomplished by controlling the addition and removal of moisture from the waste mass, the collection and extraction of landfill gas, and in some instances the addition of air (Waste Management, 2004). Waste Management signed a Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 62 of 163 Cooperative Research and Development Agreement (CRADA), which is a joint research effort with the Environmental Protection Agency (EPA), to determine which practices best promote the safe operation of large scale bioreactor landfills (Bioreactors, 2005). Waste Management has been successful by delivering waste-to-energy projects, which provide alternate fuels and saving space in local landfills. Its Wheelabrator division has converted 100 million tons of non-hazardous municipal solid waste into more than 50 billion kilowatt-hours of clean, reliable power (Wheelabrator Technologies, 2004). Waste Management has also been successful through its landfill gas-to-energy projects, which minimize emissions of greenhouse gases as well as generate energy to power 160,000 homes each day. The gas is a renewable energy source that can be gathered and used directly as medium Btu gas for industrial use or can be sold to gas- to-energy plants to fuel engine or turbine-driven generators, which generate electricity (Waste Management, 2004). 4.2.2. Intangible Resources Intangible resources include assets that typically are rooted deeply in the firm’s history and have accumulated over time. The three types of intangible resources are human, innovation, and reputational (Hitt, Ireland, & Hoskisson, 2005). Human Resources: MODERATLEY STRONG Maury Myers, Chairman of Board, once said, “Great companies are admired for their products, services, people and integrity. We want to be a great company.” Waste Management is fully committed to becoming a “great company” by upholding ethical standards and promoting diversity and inclusion. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 63 of 163 All employees are expected to follow laws and regulations that apply to their work activities and demonstrate ethical behavior in all their decisions and interactions. Some initiatives taken to ensure this are providing each employee with a current and relevant Code of Conduct, and developing and delivering diversity and inclusion training to all employees with people management responsibilities. Safety is also a core value to Waste Management. Therefore, it monitors and measures safety performance on a continuing basis. Mission to Zero (M2Z) is a Safety Certification Training that provides classroom and on the job site instruction in safety fundamentals for supervisors, drivers and helpers. M2Z means zero tolerance for unsafe actions, unsafe decisions, unsafe conditions, unsafe equipment, and unsafe attitudes (Waste Management, 2004). Innovation Resources: STRONG Waste Management is actively involved in several projects that address issues surrounding the quality of our earth, air, and water. These projects focus on preserving electricity, taking waste and gases and converting them to energy, and recycling. Arizona’s Gray Wolf Landfill is fueled by the sun. It is the first commercial application of Arizona Public Service (APS) solar hybrid power system and new type of solar panels. It uses solar power with battery storage and diesel backup. The electricity bill has decreased $2000 per month due to switching to a solar hybrid power system. The Goddard Space Flight Center landfill gas project is the first federal agency to use landfill gas to produce energy to one of its facilities. It uses renewable energy sources to heat buildings at the flight center located in Greenbelt, Maryland. The reduction in fossil fuels used will save taxpayers millions of dollars over the next 10 Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 64 of 163 years. It will also reduce enough pollution to equate to planting 47,000 acres of trees or removing 35,000 cars from Maryland’s roads. Waste Management is partnered with BMW and Ameresco Energy Service to create a methane gas-to-energy project. It produces electricity and hot water that will supply 25% of the plant’s energy. This helps stabilize the plant’s power costs. Because of this, BMW is one of the largest private holders of greenhouse gas emissions reduction credit in the U.S. Waste Management formed the Recycling America Alliance, which provides recycling, materials to brokerage services, container processing, and trading. Its main objective is to optimize the capacity and improve profitability of Company’s recycling line of business by combining assets and operations with a number of other key domestic recycling processors and marketers. Waste Management joined forces with the Chicago Climate Exchange (CCX), a non-governmental entity established to develop a voluntary marketplace for reducing and trading greenhouse gas emissions. As a member, the company has committed to reducing its emissions of greenhouse gases by 4% below average of its 1998-2001 baselines by 2006. In 2002 WM donated 120,000 metric tons of carbon dioxide needed to offset the additional carbon dioxide emissions anticipated from 2002 Olympic Winter Games. The donation helped to create the first game in Olympic history to have net zero effect on air quality of a host city (Innovative Projects, 2004). Reputational Resources: MODERATLY STRONG Waste Management is the leading provider of comprehensive waste management and environment services in North America. It is ranked 168 on the Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 65 of 163 Fortune 500 list and 370 in the Fortune Global 500. The company is a member of the Better Business Bureau (BBB) since September 2001. Based on the BBB files, the company has a satisfactory record (Better Business Bureau, 2006). Waste Management is very active in the community due its concern for issues regarding quality of our earth, air, and water. It has sponsored programs such as “Rockin the Corps” and America Recycles Day. This year the company is receiving the Corporate Vision Award from Keep America Beautiful. The company has also received the Corporate Award and the President’s Award from the National Forum for Black Public Administrators and the National Conference of Black Mayors respectively. 4.2.3. Capabilities Capabilities are the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state. They emerge over time through complex interactions among tangible and intangible resources (Hitt, Ireland, & Hoskisson, 2005). Waste Management’s capabilities are waste-to-energy, gas-to-energy, and bioreactor landfill technology. Waste Management and Wheelabrator convert 100 million tons of non- hazardous municipal solid waste into more than 50 billion kilowatt-hours of clean, reliable electric. With the cost of electricity continuously rising, the company should further its research in such a way they could become a competitor within the power industry. Waste Management is also involved on projects that convert gas-to-energy. The Landfill gas is produced through the natural breakdown of waste deposited in a landfill. The gas becomes available as a renewable energy source that can be gathered and Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 66 of 163 directly used for industrial use or can be sold to gas-to-energy plants to fuel engine or turbine-driven generators, which generate electricity (Waste Management, 2004). If studies show that it is more cost effective for traditional plants to convert to gas-to- energy plants, then WM can become a leading provider of such services. With the shortage of fuel throughout the country, this option should be considered by industrial institutions. These companies should have their R&D department consider developing a plan that would enable them to convert to a gas-to-energy plant. It is believed that Bioreactor Landfill Technology represents the next generation of landfill design and operational practices. Waste Management is leading the industry in this area, with involvement in several research projects for such practices. This puts the organization at an advantage over their competitors and can enable the firm to maintain the lead position within the industry. 4.2.4. Core Competencies and Sustainable Advantages Core competencies are resources and capabilities that serve as a source of a firm’s competitive advantage over rivals. Capabilities that are valuable, rare, costly to imitate, and non-substitutable are core competencies (Hitt, Ireland, & Hoskisson, 2005). Valuable: MODERATELY YES Valuable capabilities allow the firm to exploit opportunities or neutralize threats in its external environment. This permit’s the firm to create value for customers (Hitt, Ireland, & Hoskisson, 2005). Waste Management’s ability to collect and dispose waste, recycle and convert waste-to-energy/gas-to-energy has created a “one-stop shop” for its customers. The company also powers a portion of its trucks with natural gas versus Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 67 of 163 diesel fuel. These attributes help portray a company image to society as being one of extreme concern for the environment (Datamonitor, 2005). Rare: YES Rare capabilities are capabilities that few, if any, competitors possess. Waste Management works with businesses, industries, and public utilities to convert and distribute landfill gas that is converted to a reliable, renewable energy source. The company also powers a portion of its trucks with natural gas versus diesel fuel (Datamonitor, 2005). Although their competitors are collecting and disposing waste, WMI is the only one currently involved in projects that converts gas and waste to energy. Costly to Imitate: MODERATELY YES Costly-to-imitate capabilities are capabilities that other firms cannot easily develop. Capabilities that are costly-to-imitate are created because a firm has a unique and valuable organizational culture that emerged in the early stages of the company’s history, a link between the firm’s capabilities and its competitive advantage is casually ambiguous or social complexity (Hitt, Ireland, & Hoskisson, 2005). Waste Management is the leading provider of waste management and environmental services. Unfortunately its competitors are able to provide most of the same services. The competitors have not begun projects involving the waste-to-energy or gas-to-energy. All other services they are able to provide. Non-Substitutable: MODERATELY YES Non-substitutable capabilities are capabilities that do not have strategic equivalent valuable resources that are either not rare or imitable (Hitt, Ireland, & Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 68 of 163 Hoskisson, 2005). The only substitution for using energy as a source of power is fuel. We constantly hear of shortage within the oil and gas industry. For Waste Management to be developing alternatives now and not later, puts the company at a competitive advantage over its competitors. The only capability that meets the four criteria for sustainable advantage is the technological capability: waste-to-energy and gas-to-energy projects. 4.2.5. Summary of Firm Resources Waste Management has more intangible resources than intangible resources. To improve its financial resources, it needs to work on lowering the firm’s debt to allow Waste Management the ability to increase spending on capital projects. This would ultimately improve its physical resources. The three strongest resources are its technological, innovative, and physical resources. The capabilities that add the greatest value to Waste Management are the technological and innovative competencies. 4.3. Analysis of Objectives Waste Management’s objectives reflect on previous business ventures, current plans, and prospective deals. This is needed in order to succeed in any business, since the firm will never know where they are headed if they did not know where they came from or what state they are in at the present moment. 4.3.1. Previous Principal Operational Focus Previously Waste Management’s primary focus was on solid waste collection, recycling, and disposals. With the various competitors within this market, a new niche Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 69 of 163 was needed. So many innovative projects were implemented to maintain that competitive advantage the company possessed. 4.3.2. Short-Term Objectives Waste Management, Inc. strives to continuously train its employees. The company feels that the organization itself can continue to grow if they develop skilled, business-oriented procurement professionals. The company is also involved in many projects that convert Waste-to-Energy and Gas-to-Energy. Many of these projects have enabled the company to supply power to facilities, as well as, fuel their vehicles. 4.3.3. Long-Term and Financial Objectives In the future, Waste Management plans on looking for acquisitions and other investments to improve current operations’ performance and enhance and expand services. The company has a large amount of debt and to help suppress it, divestures of under-performing operations are being implemented. Also, the company plans on making investments in their landfill Gas-to-Energy, medical waste programs, and land purchases. 4.4. Evaluation of Financial Performance (2005, 2004, 2003) In the financial evaluation section, analysis of the company’s performance for the past five years will be conducted. This performance will be compared to their nearest competitor, as well as the industry and the S&P 500 when applicable and/or available. The information was gathered from various sources, including the company’s 10K, the competitor’s 10K, Yahoo! Finance, Morningstar, and Moneycentral. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 70 of 163 4.4.1. Financial Condition Analysis The waste management industry has been a difficult industry in which to do business during the past ten years, although the most recent five years have shown improvement. The past three years have reflected steadily growing revenues and earnings. When comparing Waste Management’s stock to its competitors’, the stock shows mixed success. Morningstar currently gives Waste Management, Inc. stock a B+ rating, which means that the stock should offer a “fair return,” one that adequately compensates for the riskiness of the stock. The following information will further evaluate and provide an in-depth view of the financial condition of the company. 4.4.2. Profitability Years of questionable accounting resulted in massive earnings restatements, rendering the company profitless from 1997 to 2000. There are only two ways to increase profit margins, either by increasing revenues or decreasing costs. Waste Management’s revenues have continued to grow over the past five years and the company has worked to contain costs. This effort is reflected in recent years and Waste Management’s performance has improved as evidenced by looking at the bottom line on the income statement, which is provided below in Table 4.4-1. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 71 of 163 Waste Management, Inc. Condensed Consolidated Statements of Operations (In Millions, Except per Share Amounts, Unaudited) Years Ended December 31 2005 2004 2003 2002 2001 Operating Revenues 13,074 12,516 11,574 11,142 11,322 Costs and expenses: Operating (excluded dep) 8,631 8,228 7,517 6,880 6,666 Selling, general, and administrative 1,276 1,267 1,216 1,392 1,622 Depreciation and amortization 1,361 1,336 1,265 1,222 1,371 Restructuring 28 (1) 44 38 - Asset impairments and unusual items 68 (13) (8) (34) 380 Total costs and expenses: 11,364 10,817 10,034 9,498 10,039 Income from operations 1,710 1,699 1,540 1,644 1,283 Other Income (expense): Interest expense (496) (455) (439) (467) (544) Interest income 31 70 12 21 37 Equity in net losses of unconsolidated entities (107) (98) - - Minority interest (48) (36) (6) (7) (5) Other, net 2 (2) 16 51 13 Total other: (618) (521) (417) (402) (499) Income before taxes and cumulative effect of change in accounting principle 1,092 1,178 1,123 1,242 784 Provision for (benefit from) income taxes (90) 247 404 422 283 1,182 931 719 820 501 Cumulative effect of change in accounting principle - 8 (89) 2 2 Net income 1,182 939 630 822 503 Table 4.4-1: Waste Management, Inc. Income Statements (Source: www.wm.com, 2006) While the company has demonstrated improvements to its net margins, which is a key profitability measure, through cost-cutting, efficiency improvements and tax incentives, the operating and EBT margins do not reflect the same improvements. The average five-year net margins of both Waste Management and their nearest competitor, Republic Service, are below that of the industry average, as shown in Table 4.4-2. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 72 of 163 Waste Management=WM 5 yr avg Republic Service=RS 2005 2004 2003 2002 2001 Company Industry Operating Margin: WM 13.10% 13.60% 13.30% 14.80% 11.30% 13.22% Operating Margin: RS 16.70% 16.70% 16.40% 19.40% 12.60% 16.36% EBT Margin: WM 8.40% 9.40% 9.70% 11.20% 7.00% 9.14% 8.4% EBT Margin: RS 14.30% 14.20% 13.80% 16.30% 9.30% 13.58% Net Margin: WM 9.00% 7.50% 5.40% 7.30% 4.40% 6.72% 5.5% Net Margin: RS 8.86 8.78 7.05 13.13 5.56 8.676 Table 4.4-2: Waste Management, Inc. and Republic Services Margins (Source: www.wm.com, 2006) 4.4.3. Management Effectiveness Ratios The management effectiveness analysis shows an improvement in returns on assets (ROA) and in returns on equity (ROE) in the past five years, as seen in Table 4.4-3. The improvements to return on assets have more than doubled in the past five years, going from 2.6% to 5.6%. This reveals a significant improvement in management effectiveness in generating profits from available assets and is perhaps the single most important measure of return, especially for a company that has such considerable dollars invested in assets. Waste Management: 2005 2004 2003 2002 2001 Return on Assets % 5.6 4.5 3.1 4.1 2.6 Industry Rank 29 35 25 34 26 Return on Equity % 19.3 15.7 11.2 15.5 9.3 Industry Rank 26 32 23 26 22 Ranking: (100=Worst) Table 4.4-3: Waste Management, Inc. ROA, ROE, and Industry Rank (Source: www.wm.com, 2006) Return on equity is extension of ROA. In Waste Management’s case, the ROE for 2005 shows an annual payoff to investors that amounts to 19.3 cents for every dollar of equity. Table 4.4-4 illustrates the five year average of ROE, ROA and ROC as compared to the industry and the S&P 500. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 73 of 163 Investment Returns % Waste Management Industry S&P 500 Return On Equity (5-Year Avg.) 14.7 11.7 12.4 Return On Assets (5-Year Avg.) 4.1 2.9 2.1 Return On Capital (5-Year Avg.) 6.1 4.2 5.8 Table 4.4-4: Waste Management, Inc. Industry, and S&P 500 ROA, ROE, and ROC – 5 Year Average (Source: www.wm.com, 2006) 4.4.4. Debt, Working Capital, and Liquidity Analysis The majority of the companies in the waste management industry have a lot of debt, and Waste Management is no exception. In fact, its debt/total capitalization ratio is among the highest in the industry, measuring at 58.7%. The industry standard is 21.4%. This is not necessarily damaging, as long as the company is able to service its debt; at the current time, the company’s cash flow is sufficient to cover its debt. Measurement: Last 12 months Waste Management S&P Industry Republic 2005 2004 2003 2002 2001 Long-Term Debt: (in millions) 1,472 8,165 8,182 7,997 8,062 7,709 Debt/Equity: 1.04 1.46 0.90 1.33 1.37 1.44 1.52 1.43 Debt Ratio: 0.65 0.70 0.70 0.72 0.73 0.72 Current Ratio: 1.40 1.00 0.72 1.06 0.88 0.78 0.86 0.84 Financial Leverage: 5.70 3.60 2.80 3.50 3.50 3.60 3.80 3.60 Net Working Capital: 194 -386 -744 -473 -597 Table 4.4-5: Waste Management, Inc. Debt, Working Capital, and Liquidity (Source: www.wm.com, 2006) While the debt/equity ratio is improving, it still stands at 1.33, meaning the company has $1.33 of long-term debt for every dollar of stockholder’s equity. The net working capital, calculated by subtracting current assets from current liabilities, returned a positive $194 million in 2005 after several years of negative values. These are shown in Tables 4.4-5 and Tables 4.4-6. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 74 of 163 Waste Management Condensed Balance Sheet for the year ended December 31, 2005 Assets $Mil Liabilities and Equity $Mil Cash 666.0 Current Liabilities 3,257.0 Other Current Assets 2,785.0 Long-Term Liabilities 8,165.0 Long-Term Assets 17,684.0 Other Liabilities 3,592.0 Total 21,135.0 Shareholders' Equity 6,121.0 Total 21,135.0 Table 4.4-6: Waste Management, Inc. Condensed Balance Sheet (Source: www.wm.com, 2006) During 2005, Waste Management returned nearly $1.2 billion to its shareholders through share repurchases and quarterly dividends. The company had a strong cash balance at year-end and portions of the cash was used to execute a $291 million accelerated share repurchase in early 2006. Although the repurchases and dividends may help to boost the stock price, it may leave the company short of cash and borrowing capability if it were to need cash to grow. The company would probably have to raise additional capital from outside sources if it continues to grow at its current rate. 4.4.5. Management Efficiency The management efficiency ratios are presented below in Table 4.4-7. The company has completed major restructuring in the past five years and has significantly reduced their headcount and layers of management. This allows them to produce better ratios for income/employee and revenue/employee ratios than the industry. The company has major investments in assets and the asset turnover ratio is in-line with the industry. The company has also been focusing on improving its past due collections, Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 75 of 163 enabling the company to turn its receivables faster than both the industry and the S&P 500, which has a positive effect on the cash cycle. Ratio: Waste Management Industry S&P 500 Income/Employee 24,000 16,000 30,000 Revenue/Employee 261,000 228,000 362,000 Receivable Turnover 6.6 7.1 7.7 Inventory Turnover 91.3 142.9 8.5 Asset Turnover 0.6 0.6 0.4 Table 4.4-7: Waste Management, Inc. Management Efficiency (Source: www.wm.com, 2006) 4.4.6. Market Value Analysis Waste Management is still battling some negative investor perception due to its history and problems with the SEC and the requirement to restate its earnings. These issues are reflected in the company’s current P/E ratio, which is below both the industries and the S&P 500’s, as shown in Table 4.4-8. Price Ratios Waste Management Industry S&P 500 Current P/E Ratio 17.0 22.3 18.7 P/E Ratio 5-Year High 40.6 294.0 64.8 P/E Ratio 5-Year Low 12.8 13.4 16.4 Price/Sales Ratio 1.48 1.42 1.52 Price/Book Value 3.17 2.88 2.94 Price/Cash Flow Ratio 7.60 8.70 12.50 Table 4.4-8: Waste Management, Inc. Market Value Analysis (Source: www.wm.com, 2006) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 76 of 163 The company has been working hard to improve its image, as well as control its costs, in order to improve margins. It is critical that Waste Management regain its credibility, as analysts must be reasonably confident regarding the quality of the company’s stock and the reliability of the financial reports. As of April 27th, the stock’s 52 week high is $38.04 and the 52 week low is $26.80. Figure 4.4-1: Comparison of Five-Year Cumulative Return of Stock Value (Source: http://www.wm.com/wm/investor/subscriptions/2006/2006proxy.pdf) During 2005, the company returned nearly $1.2 billion to its shareholders through share repurchases and dividends. The board of directors has authorized the additional investment of up to $1.2 billion in combined dividend payouts and share repurchases in the next two years. This is illustrated below in Figure 4.4-2. This commitment to returning value to the shareholders places Waste Management among the top dividend- paying companies in the S&P 500. These factors should have a positive impact on the stock price, but analysts have remained cautious, Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 77 of 163 Figure 4.4-2: Waste Management, Inc. Cash Being Returned to Shareholders (Source: http://www.wm.com/WM/investor/presentations/20060306RaymondJames.pdf, 2006) 4.4.7. Growth Analysis As evidenced by Figure 4.4-3 and Table 4.4-9, Waste Management’s revenue shows continued growth over the past five years. In the past, the company has posted results that are some of the best in its industry. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 78 of 163 Waste Management, Inc. Revenue for the Past 5 Years (in Millions) 13,500 13,000 12,500 12,000 11,500 11,000 10,500 10,000 2005 2004 2003 2002 2001 Figure 4.4-3: Waste Management, Inc. 5 Year Revenue Statement (Source: www.wm.com, 2006) Waste Management, Inc. Revenue and Income Overview 2005 2004 2003 2002 2001 Sales $Mil 13,074 12,516 11,648 11,211 11,322 Operating Income $Mil 1,710 1,699 1,540 1,644 1,283 Income Tax $Mil -90 247 404 --- --- Net Income $Mil 1,182 939 630 822 503 Earnings/Share $ 2.09 1.61 1.06 1.33 0.80 EPS (Cont Ops) $ 2.09 1.60 1.21 1.33 0.80 Dividends/Share $ 0.80 0.75 0.01 0.01 0.01 Total Shares Mil 560 576 589 613 629 Table 4.4-9: Waste Management, Inc. Revenue and Income Overview (Source: www.wm.com, 2006) In contrast to its peers, the stock’s earnings per share have grown at a very high rate over the past three years. However, the stock’s sustainable growth rate is quite a bit less than the rate at which its earnings per share have grown. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 79 of 163 Below in Figure 4.4-4 is Waste Management’s project spending for 2006. The company projects to have $888 million in cash equivalents and short-term investments at year end. The projection shows no growth from acquisitions, as it expects to sell approximately $250 million in assets, which is the same amount it plans to reinvest in acquisitions. Waste Management does project to spend $1.45 billion on capital expenditures, which should help to generate more revenue and/or costs savings that should advance future growth. Figure 4.4-4: Waste Management, Inc. Cash Being Returned to Shareholders (Source: http://www.wm.com/WM/investor/presentations/20060306RaymondJames.pdf, 2006) 4.4.8. Summary of Financial Analysis After a careful analysis of the financial data, it is our finding that Waste Management may be sacrificing long-term growth for short-term returns. The company recently posted better-than-expected returns for the first quarter of 2006 and the stock Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 80 of 163 price is trading around $38.00 per share. Morningstar analyst, Gregory Barry, estimates a fair market price for Waste Management stock to be $33.00 per share. This data leads us to question the continued stock buyback program. Most companies continue to buy back stock when the stock is undervalued, but that does not appear to be the case for Waste Management. This leads us to conclude that the reason for the stock buyback program is to increase EPS by decreasing shares outstanding, which can boost EPS in the short-term, but this is not a viable way to continue growth. With the amount of debt that the company is carrying, some of the free cash flow generated should be used to pay down debt, so there is working capital available for real growth. The stock buyback program should be discontinued, as we believe it is only a short-term fix for the stock price. Instead, we recommend using the remaining free cash flow be used to invest in research and development. This is addressed in detail in our recommendations. 4.5. Strategic Analysis This section will analyze Waste Management’s past and current corporate and business strategies, as well as review the company’s objectives and goals. 4.5.1. Corporate-Level Strategy and Internal Strategy There are two key questions that need to be answered when selecting a corporate-level strategy: what businesses should the company be in and how should the corporate office manage the group of businesses? Waste Management has chosen a directly related diversification strategy. The company offers a select variety of Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 81 of 163 services to many different consumers, but it concentrates on one industry-waste management. The corporate office manages its operations through six operating groups, four of which are organized by geographic area while the other two are organized by function. The geographic groups include Eastern, Midwest, Southern and Western groups and the two functional groups consist of the Wheelabrator Group, which provides waste-to- energy services and the Recycling Group. After several years of growth through acquisitions, the company is now focusing its attention on executing strategies based on four objectives: • Revenue growth through pricing initiatives • Lowering operating and selling, general, and administrative costs through process standardization and productivity improvements • Improving the asset portfolio through the “fix or seek exit strategy” and • Generating strong and consistent cash flow from operations that can be returned to shareholders. 4.5.2. Business-Level Strategy Whether by choice or by default, all firms choose at least one business-level strategy. This strategy describes how the firm will compete and several key issues must be addressed. These key issues include: • What goods or services should we offer to our customers? • How will we provide these services? • How will we distribute these services to the marketplace? Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 82 of 163 In seeking to respond to these key issues, founders Dean Buntrock and Wayne Huizenga began to implement a differentiation strategy. They understood that, while trash collection was historically provided by numerous, small, regional companies, domestic trash collection could be a national business. They saw on opportunity to profit from economies of scale. The result of more than 2,000 mergers and acquisitions produced the Waste Management of today. It is now the leading provider of integrated waste services in North America. The company has a vast network of assets and employees that provide a comprehensive range of waste management services. Through subsidiaries, the company offers collection, transfer, recycling, disposal and waste-to-energy services. In addition, while providing these services, the company seeks projects and initiatives that they believe make a positive difference for the environment, including recovering and processing the methane gas produced through landfill decomposition. Waste Management has been working to improve their organization by concentrating on operational excellence and profitability rather than on revenue growth. (Waste Management, 2005). In order to accomplish operational excellence, the company continuously reviews the operations and works to identify best practices, implement these best practices as standards, and work to continuously improve them. The company’s revenue growth and pricing excellence strategy centers around attaining a return on invested capital that fittingly takes into account the cost of capital, risks in the business, and the unique disposal assets owned by Waste Management. The company is using a more disciplined approach to pricing, carefully analyzing operations and making decisions based on market specific information, while taking Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 83 of 163 costs into account. In 2005, this strategy was most apparent in the collection line of business, where the company focused on new business pricing, minimizing price roll- backs, and charging an environmental cost recovery fee and revised fuel surcharge. In addition to these actions, the company has implemented fee programs to recover costs incurred for such items as accounts receivable collections, container delivery and other various services According to Waste Management’s chief executive officer, David P. Steiner in his letter in the 2005 annual report, WM is changing and so, too, is their strategy. The company is changing the way they think-about the business, the company and their role in the world. The approach to running the business has become more of a science, relying on solid facts and good data. The company is shifting to a longer-range view and this has caused Waste Management to look at everything it does as an investment, which has long term consequences. The commitments that are made must benefit the stakeholders, today and far into the future. 4.6. Value Chain Analysis Value chain analysis permits an organization to have a greater understanding of the functional operations as resources and capabilities that create value while pointing out the areas that do not add value. Comprehending this type of analysis is critical since an organization earns above average returns only when value chain creation exceeds the costs associated with the value chain (Hitt, Ireland, & Hoskisson, 2005). The primary and support activities of the value chain for Waste Management are analyzed in terms of strengths and weaknesses. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 84 of 163 This analysis of Waste Management concerning the value chain concept further expands upon the original model by integrating a four-stage process where competitively relevant strengths and weaknesses are revealed that add or subtract value as competitive advantages or disadvantages which ultimately lead to the identification of a proper strategy formulation (Duncan, Ginter, & Swayne, 1998). This approach examines the organizational value chain in a holistic manner in terms of sustaining a competitive advantage and recognizing strategic implications. Improved decision making results from the process of this enhanced value chain model. The initial stage of Waste Management’s value chain analysis emerges by developing an exhaustive list of strengths and weaknesses and a corresponding location on the organization’s value chain as seen in Figure 4.6-1 (Datamonitor, 2005; Dignan, 2004; SAP, 2005; Value Line, 2006; Waste Management, 2006). Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 85 of 163 S1 Brand Name Recognition S2 Vast Resources/Asset Base S3 Fleet Route System Savings S9 Excellent Leadership S5 Environmentally Conscious S10 Environmentally Conscious Services Innovative Culture S6 Landfill Gas Projects S16 Industry Leadership Role S8 SAP/ERP System W1 High Debt Structure S13 “Best Place to Work Program” W3 Overly Dependent on W2 Temporary Employees S7 Volume Purchasing Efficiencies Inorganic Growth W5 Landfill Dynamics Organizational Infrastructure Su pp Human Resource Management ort M Ac arg tiv in iti Technology Development es Procurement s i tie tiv Inbound Outbound Marketing in y Ac Operations Service arg ar Logistics Logistics & Sales M Prim S4 Transportation Management S11 Integrated Environmental Service Offerings S12 Excellent Website S14 Driver Sales Referral Program S15 “Think Green” Promotional Program W4 Volume Growth Figure 4.6-1: Waste Management, Inc. Value Chain (Source: Duncan, Ginter, & Swayne, 1998) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 86 of 163 The second stage of the expanded value chain analysis involves four steps where the primary and support activities are assessed for attaining the distinction as competitively relevant strengths and weaknesses. The first step re-categorizes and re- conceptualizes the strengths and weaknesses as resources or capabilities. The second step entails a deeper inspection of the strengths and weaknesses as resources and capabilities based on four criterions which include value, rareness, imitability, and sustainability. In step three, a value rating is assigned to the process from step two. The value ratings consist of a categorization that includes inadequate, adequate, attractive/unattractive, potential, competitive/uncompetitive, and distinctive. For a strength to develop into a competitively relevant strength, a substantial number of distinctive or competitive value ratings must transpire. Likewise, for a weakness to transform into a competitively relevant weakness, a significant amount of inadequate or noncompetitive value ratings must emerge. The final product from the stage two process leads to competitively relevant strengths and weaknesses as depicted in Table 4.6-1. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 87 of 163 Power of the Strength or Weakness Strengths/Weaknesses Val ue Rareness Imitability Sustai nability Resources S1 Brand Name Recognition Competitive Distinctive Competitive Competitive S2 Vast Resources/Asset Base Distinctive Distinctive Distinctive Distinctive S6 Landfill Gas Projects Competitive Competitive Competitive Competitive S8 SAP/ERP System Competitive Competitive Potential Potential S9 Excellent Leadership Distinctive Distinctive Competitive Competitive S15 “Think Green” Promotional Program Distinctive Distinctive Competitive Competitive S16 Industry Leadership Role Distinctive Distinctive Distinctive Distinctive W1 High Debt Structure Uncompetitive Uncompetitive Uncompetitive Uncompetitive W2 Temporary Employees Unattractive Unattractive Unattractive Unattractive W3 Overly Dependent on Inorganic Growth Uncompetitive Uncompetitive Uncompetitive Uncompetitive W4 Volume Growth Unattractive Unattractive Uncompetitive Uncompetitive W5 Landfill Dynamics Uncompetitive Uncompetitive Uncompetitive Uncompetitive Strengths/Weaknesses Capabi lities S3 Fleet Route System Savings Competitive Competitive Competitive Potential S4 Transportation Management Distinctive Competitive Competitive Potential S5 Environmentally Conscious Services Distinctive Distinctive Competitive Competitive S7 Volume Purchasing Efficiencies Distinctive Competitive Competitive Competitive S10 Environmentally Conscious Innovati ve Culture Distinctive Distinctive Competitive Competitive S11 Integrated Environmental Service Offerings Distinctive Competitive Competitive Competitive S12 Excellent Website Competitive Competitive Potential Potential S13 “Best Place to Work Program” Competitive Competitive Competitive Competitive S14 Driver Sales Referral Program Potential Potential Potential Potential Table 4.6-1: Waste Management, Inc. Strengths and Weaknesses in Resources and Capabilities (Source: Duncan, Ginter, & Swayne, 1998) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 88 of 163 Only those competitively relevant strengths and weaknesses as resources and capabilities are carried over for further probing and evaluation in stage three. These competitively relevant strengths and weaknesses are assessed for the potential to contribute a competitive advantage or disadvantage as either a cost or uniqueness driver. Attaining a competitive advantage resides from adding value to customers. Adding value as a result of a cost driver leads to a competitive advantage on a basis of cost leadership. Conversely, adding value from a uniqueness driver translates into a competitive advantage on a basis of differentiation. Through this process, the original strengths and weaknesses in relation to primary and support activities of the expanded value chain are adding or subtracting value which ultimately leads to strategic implications encompassing cost leadership or differentiation. Waste Management’s strengths and weaknesses for potential competitive advantage and disadvantage as a result of adding or subtracting value on the basis of cost and uniqueness drivers are illustrated on the following pages. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 89 of 163 Strengths and Weaknesses as Potential Sources of Competitive Advantage and Disadvantage Potential Source of Competitive Advantage/ Location on Strength/Weakness Description Disadvantage Value Chain S1 Resource Waste Management possesses a distinctive brand name that Uniqueness Driver Organizational is synonymous with the industry, similarly to other industry Infrastructure leaders such as Xerox and Coca-Cola. Waste Management’s brand name represents the industry and is visible and respected throughout the world. S2 Resource The organization has a vast resource and asset base with more Uniqueness Driver Organizational than $20 billion in total assets which amount to 40 percent Infrastructure of the disposal capacity in the United States. The assets encompass 22,000 commercial motor vehicles, 413 collection operations, 370 transfer stations, 283 active landfill disposal sites, 17 waste-to-energy plants, 131 recycling plants, and 95 beneficial-use landfill gas projects. These assets permit a wide environmental service offering which garners strong barriers to entry. S3 Capability Waste Management has implemented “Waste Route” which aids Cost Driver Technology in achieving economies of density concerning the operations Development of the commercial motor vehicle fleet. The company continues to seek improvements in this area which enables substantial operating cost savings. As of late 2002, the organization has reduced the number of routes from nearly 20,000 to currently 15,000. Eliminating a route will save $120,000 annually. The implementation of the program was high at $20 million during 2003-2004; however, these costs are more than offset with operational savings of approximately $500 million over a five year period. The truck fleet for the company was reduced from 25,000 in 2004 to 22,000 in 2005. S4 Capability Transportation management and outbound logistics serve as a Uniqueness Driver Outbound core competency for Waste Management. Solid waste Logistics collection accounts for 58 percent of the revenues and provides great visibility and excellent customer service. S5 Capability Waste Management earns a significant amount of revenues Uniqueness Driver Technology from environmentally conscious services through recycling Development services and waste-to-energy programs. A strong partner relationship with the Environmental Protection Agency exists in an effort to find alternative technology for waste disposal. This transpires from waste-to-energy programs such as methane gas usage where Waste Management powers a portion of the commercial motor vehicles as opposed to using diesel fuel. Waste Management has positioned itself into a “greener services” organization which places the company as a role model by not only disposing of waste but also developing innovative solutions in an environmentally friendly manner. S6 Resource Waste Management throughout North America is working Uniqueness Driver Technology with businesses, industries, and public utilities in the Development development of beneficial-use projects from landfill gas. This gas is a reliable and renewable energy source that is naturally produced from the decomposition of waste in landfills. This energy source is used as a medium BTU gas for industrial use that is sold to gas-to-energy plants that fuels engine or turbine driven generators that produce electricity. With 95 landfill gas projects, Waste Management produces enough landfill energy to generate 250 megawatts of “green energy.” On an annual basis this is enough power for 225,000 homes thereby replacing more than 2 million barrels of oil per year. S7 Capability Waste Management has capitalized on greater volume Cost Driver Procurement purchasing efficiencies through the company’s Total Customer Satisfaction program. As of 2001, when this program was initiated, procurement costs were reduced by $75 million in the first year. By the end of 2004, savings have amounted to $303 million as a result of half of the company’s procurement expenditures flowing through the 105 supplier partners. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 90 of 163 Strengths and Weaknesses as Potential Sources of Competitive Advantage and Disadvantage Potential Source of Competitive Advantage/ Location on Strength/Weakness Description Disadvantage Value Chain S8 Resource The SAP/ERP safe passage program enables Waste Management Uniqueness Driver Technology to focus on streamlining costumer service and billing functions Development thereby increasing efficiency, improving customer satisfaction, and allowing for a greater competitiveness. Waste Management intends to use SAP/ERP for container management, waste logistics, and on board computing to achieve operational excellence and to permit employees to focus more on strategic issues. S9 Resource The employment of a proper organizational structure by Waste Uniqueness Driver Organizational Management facilitates excellent managerial leadership where Infrastructure decision making occurs at the appropriate time and location. Much decision making and controls transpire at the regional and local level thereby making the organization more responsive and competitive at the point of service. S10 Capability As demonstrated by the greener service offerings, the Uniqueness Driver Organizational organization fosters a culture of innovation regarding Infrastructure environmental solutions. S11 Capability Waste Management offers the most comprehensive Uniqueness Driver Service environmental service solutions in the industry. This resides with the company’s integrated solutions of disposal operations, recycling, transfer stations, waste removal, trading, collection, resource recovery, landfill, wheelabrator operations, in plant service, and needle disposal. S12 Capability Excellent website Not Competitively Marketing and Relevant Sales S13 Capability As part of the “Best Place to Work” program, Waste Uniqueness Driver Human Resource Management strives to earn a reputation for taking care of their Management employees. This is accomplished by developing programs for extensive training, capturing ideas and best practices which lead to empowerment, and rewarding employees along with a commitment of safety towards the workforce. Waste Management is a company that bolsters opportunities, training, excellent benefits, and competitive compensation and rewards. S14 Capability Driver sales referral program Not Competitively Marketing and Relevant Sales S15 Resource The “Think Green” promotional program is more than a slogan Uniqueness Driver Marketing and due to the communicated content and nature of the topic. The Sales credibility and reputation of the company is paramount with the “Think Green” program and Waste Management exceeds the role as an environmental service provider with recycling and waste-to- energy initiatives. S16 Resource Waste Management through various service offerings has attained Uniqueness Driver Organizational the status as an industry role model by partnering with the Infrastructure Environmental Protection Agency and other stakeholders. W1 Resource The high level of indebtedness poses a significant constraint Uniqueness Driver Organizational upon the organization. By the end of 2005, the company amassed Infrastructure $8.6 billion in total debt with a debt ratio of about 70 percent and a debt to equity ratio of 1.33. This is simply too high and creates to many negative implications. High debt levels encourage organizational pressure and stress while at the same time limits the ability for flexible planning or for reacting to changes in the business and marketplace. Also, Waste Management’s high debt structure subjects the company to a greater risk of non-compliance with financial and other entities. W2 Resource Temporary Employees Not Competitively Human Resource Relevant Management Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 91 of 163 Strengths and Weaknesses as Potential Sources of Competitive Advantage and Disadvantage Potential Source of Competitive Advantage/ Location on Strength/Weakness Description Disadvantage Value Chain W3 Resource Waste Management is too dependent upon acquisitions for Uniqueness Driver Organizational revenue growth. This surely accounts for a substantial reason Infrastructure for the high debt structure. Long term negative affects are possible since the organization cannot sustain the recent acquisition sprees to propel revenue growth. Also, excessive acquisitions serve as high opportunity costs due to integrative measures. These efforts use scarce resources that are better utilized for investments with service and product offerings. W4 Resource The revenue growth for Waste Management has occurred Uniqueness Driver Marketing and primarily from price increases rather than volume growth. Sales W5 Resource Active and inactive landfill oversight is not exclusive to Waste Uniqueness Driver Organizational Management within the industry; however, these assets require Infrastructure a great amount of time, energy, and effort to manage. Available landfill capacity is a serious long-term concern for the industry and Waste Management is in a position to seek other viable alternatives which can ultimately turn this weakness into a strength. As the concluding process of the expanded value chain analysis, stage four highlights the generic business level strategic implications for sustaining a competitive advantage. Assessing the competitively relevant strengths and weaknesses as resources and capabilities on the basis of cost and uniqueness drivers identifies the proper generic business level strategy for Waste Management. This evaluation reveals that a differentiation strategy permits the greatest potential for sustaining a competitive advantage due to the uniqueness drivers located within the value chain. Even though cost controls are important for the environmental services industry, these cost attributes do not lead to a sustained competitive advantage. Cost controls are a necessity, a given, and a requirement in order to compete and survive due to the nature of the industry which is typified by a heavy laden fixed asset infrastructure producing substantial fixed and variable costs. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 92 of 163 To conclude, Waste Management occupies resources and capabilities for pursing differentiation through the organizational infrastructure, outbound logistics, technology development, and service offerings. These functional areas of the value chain enable the apparent and potential sustained competitive advantage for the organization. Nevertheless, Waste Management possesses the possibility for a competitive disadvantage regarding uniqueness drivers that are associated with the debt structure and overly dependence upon inorganic growth. The strategic implications of competitive advantage for Waste Management are portrayed in detail on the following page. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 93 of 163 Strategic Implications and Competitive Advantage Strategic Strength/Weakness Strategic Implication Strengths: S1 Resource-Uniqueness Driver- Waste Management’s resources and capabilities particularly with a recognizable brand name Organizational Infrastructure along with an abundance of assets enable the organization to offer a wide array of environmental service and product solutions which provide substantial possibilities for further S2 Resource-Uniqueness Driver- differentiation in services and additional advancements in the market place. Organizational Infrastructure S3 Capability-Cost Driver- Waste Management’s environmentally conscious innovative culture and excellent leadership Technology Development permit unprecedented opportunities for service differentiation in a unique industry where cost controls are already a requirement to survive and competing on cost advantage alone is S4 Capability-Uniqueness Driver- difficult to attain. Outbound Logistics S5 Capability-Uniqueness Driver- Technology Development S6 Resource-Uniqueness Driver- Technology Development S7 Capability-Cost Driver- Procurement S8 Resource-Uniqueness Driver- Technology Development S9 Resource-Uniqueness Driver- Organizational Infrastructure S10 Capability-Uniqueness Driver- Organizational Infrastructure S11 Capability-Uniqueness Driver- Service S13 Capability-Uniqueness Driver- Human Resource Management S15 Resource-Uniqueness Driver- Marketing and Sales S16 Resource-Uniqueness Driver- Organizational Infrastructure Weaknesses: W1 Resource-Uniqueness Driver- Organizational Infrastructure Waste Management has the potential to incur a competitive disadvantage regarding uniqueness drivers that are associated with the weaknesses of a high debt structure along with an overly W3 Resource-Uniqueness Driver- dependence upon inorganic growth. Organizational Infrastructure W4 Resource-Uniqueness Driver- Marketing and Sales W5 Resource-Uniqueness Driver- Organizational Infrastructure Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 94 of 163 4.6.1. Summary of Strategic Analysis Waste Management pursues a differentiation strategy and should continue in this direction concerning the broad scope of environmental service solutions that are offered to customers. This generic business level strategy in conjunction with a directly related diversification corporate level strategy places the organization in the best position for earning above average returns while sustaining a competitive advantage in the environmental services industry. The corporate and business level strategies are fostered by added value for customers that emerge through competitively relevant strengths in the primary and support activities of the value chain (Hitt, Ireland, & Hoskisson, 2005). 4.7. SWOT Analysis A SWOT analysis is a methodology used to identify the strengths, weaknesses, opportunities, and threats to an organization (Hitt, Ireland, & Hoskisson, 2005). The following Table 4.7-1 and bullet summary is an effective manner in identifying Waste Management’s internal and external concerns (Datamonitor, 2005; Dignan, 2004; SAP, 2005; Value Line, 2006; Waste Management, 2006). Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 95 of 163 Strengths Weaknesses ♦ Brand name recognition ♦ High debt structure ♦ Vast resources/asset base ♦ Temporary employees ♦ Fleet route system savings ♦ Overly dependent on inorganic growth ♦ Transportation management ♦ Volume growth ♦ Environmentally conscious services ♦ Landfill dynamics ♦ Landfill gas projects ♦ Volume purchasing efficiencies ♦ SAP/ERP system ♦ Excellent leadership ♦ Environmentally conscious innovative culture ♦ Integrated environmental service offerings ♦ Excellent website ♦ “Best Place to Work Program” ♦ Driver sales referral program ♦ The “Think Green” promotional program ♦ Industry leadership role Opportunities Threats ♦ Increased demand for environmental services ♦ Cyclical nature of business ♦ Single source supplier of environmental services ♦ Regulatory environment ♦ Recycling ♦ Competitive environment ♦ Planning for the divestment of underperforming ♦ Minimization of waste operations along with organizational restructuring ♦ Fluctuating fuel costs ♦ Information management systems Table 4.7-1: Waste Management, Inc. SWOT Analysis 4.7.1. Strengths – Internal As revealed while conducting the value chain analysis for an internal assessment of Waste Management, the following strengths provide the greatest potential for adding value and sustaining a competitive advantage: Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 96 of 163 ♦ Brand name recognition – Waste Management possesses a distinctive brand name that is synonymous with the industry, similarly to other industry leaders such as Xerox and Coca-Cola. ♦ Vast resources/asset base – The organization has a vast resource and asset base with more than $20 billion in total assets which amount to 40 percent of the disposal capacity in the United States. ♦ Fleet route system savings – Waste Management has implemented “Waste Route” which aids in achieving economies of density concerning the operations of the commercial motor vehicle fleet. ♦ Transportation management – Transportation management and outbound logistics serve as a core competency for Waste Management. ♦ Environmentally conscious services – Waste Management earns a significant amount of revenues from environmentally conscious services through recycling programs and waste-to-energy programs. ♦ Landfill gas projects – Waste Management throughout North America is working with businesses, industries, and public utilities in the development of beneficial-use projects from landfill gas. ♦ Volume purchasing efficiencies – Waste Management has capitalized on greater volume purchasing efficiencies through the company’s Total Customer Satisfaction program. ♦ SAP/ERP system – The SAP/ERP safe passage program enables Waste Management to improve numerous functional areas with the company. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 97 of 163 ♦ Excellent leadership – The employment of a proper organizational structure by Waste Management facilitates excellent managerial leadership where decision making occurs at the appropriate time and location. ♦ Environmentally conscious innovative culture – As demonstrated by the “greener” service offerings, the organization fosters a culture of innovation regarding environmental solutions. ♦ Integrated environmental service offerings – Waste management offers the most comprehensive environmental service solutions in the industry. ♦ Excellent website – The organization’s website is dynamic and of the highest quality. There is an abundance of information presented in an orderly manner and most importantly, an availability of waste management solutions for customers and potential customers. ♦ “Best Place to Work Program” – Waste Management is a company that bolsters opportunities, training, safety, excellent benefits, and competitive compensation and rewards. ♦ Driver sales referral program – With about 9000 drivers the company has initiated a program for drivers to refer leads to the sales force. ♦ The “Think Green” promotional program – The “Think Green” promotional program is more than a slogan due to the communicated content and nature of the topic. ♦ Industry leadership role – Waste Management through various service offerings has attained the status as an industry role model by partnering with the Environmental Protection Agency and other stakeholders. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 98 of 163 4.7.2. Weaknesses – Internal As revealed while conducting the value chain analysis for an internal assessment of Waste Management, the following weaknesses provide the greatest potential for allowing a competitive disadvantage: ♦ High debt structure – The high level of indebtedness poses a significant constraint upon the organization. By the end of 2005, the company amassed $8.6 billion in total debt with a debt ratio of about 70 percent and a debt to equity ratio of 1.33. ♦ Temporary employees – The company has approximately 15,000 temporary employees. ♦ Overly dependent on inorganic growth – Waste Management is too dependent upon acquisitions for revenue growth. ♦ Volume growth – The revenue growth for Waste Management has occurred primarily from price increases rather than volume growth. ♦ Landfill dynamics – Active and inactive landfill oversight is not exclusive to Waste Management within the industry; however, these assets require a great amount of time, energy, and effort to manage. Available landfill capacity is a serious long-term concern for the industry and Waste Management is in a position to seek other viable alternatives which can ultimately turn this weakness into strength. 4.7.3. Opportunities – External After an in-depth analysis and scanning of the external environment, the following opportunities present the greatest potential positive growth for Waste Management: Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 99 of 163 ♦ Increased demand for environmental services – The worldwide market for environmental services is presently valued at $515 billion and is projected to rise to $688 billion by 2010. With this expected increase, the environmental services sector is one of the fastest growing industries. Increasing pressure on organizations is occurring on a worldwide basis regarding the development and commitment for environmentally sensitive and friendly technology. As previously discussed, Waste Management is in the ideal position to capitalize on these trends and developments due to organization’s industry role model leadership status and the broad scope of environmental service offerings. ♦ Single source supplier of environmental services – The present and future development in the United States waste management environmental service industry resides with environmental service companies offering services that address all of a customer’s needs. This bundling of services is referred as a “one- stop-shop.” With this current and continuing trend, many environmental service providers must broaden service offerings in order to remain competitive and survive. Coupled with this development arises the employment of research and development in an effort to expand environmental service solutions. Innovative technological offerings assist by keeping up with market demands while enhancing the reputation and respect in the marketplace. The market along with stakeholders will appreciate the organization that provides efficiency, effectiveness, competitive pricing, and environmentally friendly technologies leading to a comprehensive service offering where solutions are available. This “one-stop-shop” and single source supplier movement once again places Waste Management in the ideal position to capitalize Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 100 of 163 on these market inclinations and leanings due to organization’s industry role model leadership status and the extensive portfolio of environmental service offerings. ♦ Recycling – In late 2005 Waste Management acquired the remaining minority interests in Recycle America Alliance thereby instituting the Recycling Group as a wholly owned entity. This is a unifying progressive move for Waste Management since the Recycling Group reinforces and optimizes the entire activity system in an interlocking and integrative manner. This is illustrated by the structural arrangement of Waste Management’s four geographic operating groups providing particular recycling services which are interwoven with the other operations of those vary geographic groups. The geographic group’s recycling operations and financial results are not included within the Recycle America Alliance’s performance; nonetheless, the Recycle Group’s sharing of knowledge and expertise with the geographic groups unequivocally produce competitive advantages for Waste Management as a whole. Waste Management is the largest recycler in North America. In addition, the company also fulfills an industry role model status by heavily promoting the recycling and reuse of materials as opposed to these remnants filling up landfills. Waste Management intends to lead recycling efforts into the future and this line of service presents exceptional growth opportunities especially with the coupling of other environmental service solutions. ♦ Planning for the divestment of under performing operations along with organizational restructuring – Recent announcements towards improvements in efficiency by Waste Management consist of the removal of under performing and non-strategic Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 101 of 163 operations coupled with the simplification of the organizational structure serve as opportunities for superior company performance. The resources for divestment mainly consist of collection facilities and transfer stations. These operational assets contributed approximately $22 million in operating income for 2005. Meanwhile, the organizational changes aim to increase responsiveness in local and regional markets, enhance daily decision making at the point of service, and reduce costs at the group and corporate offices. These organizational and operational changes will produce about $30 million in cost saving during 2005 followed by $70 million in annual cost savings starting in 2006. Such savings allow Waste Management the opportunity to redirect these resources towards initiatives that increase the company’s standing in the environmental service industry. ♦ Information management systems – Waste Management’s recent and continued enactment of managerial information systems strive to increase functionality within the organization. This occurs from projects such the revenue management system piloted in Phoenix, Arizona, the Compass program for allowing annual fleet maintenance savings of $40 million, and the Waste Route program which expects to reduce transportation truck costs of $500 million over a five year period. Certainly, other opportunities abound for a company of the size of Waste Management to improve operational efficiency and effectiveness while serving customers. 4.7.4. Threats – External After an in-depth analysis and scanning of the external environment, the following threats present the greatest potential negative outcomes for Waste Management: Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 102 of 163 ♦ Cyclical nature of business – Unfortunately, Waste Management’s business at times succumbs to the seasonality of inclement weather conditions. Historically, the organization’s operating revenues decrease during the winter as a result of lower volumes of construction and demolition waste along with reductions in the volume of commercial and residential waste. In addition, extremely deteriorating weather surroundings could potentially shut down various operations. ♦ Regulatory environment – Obviously, due to the nature of Waste Management’s enterprises, the company is subject to existing and evolving regulations. These regulations include environmental, health, safety, and transportation laws at the levels of the federal, state or provincial, and local or municipal jurisdictions. Numerous agencies administer these regulations which primarily include the Environmental Protection Agency; however, other governmental entities oversee such areas involving the company’s activities concerning zoning, transportation, land use, health and safety. These agencies routinely monitor Waste Management’s operational activities and have the power and authority to enforce compliance, implement injunctions, and inflict civil or criminal penalties where violations may arise which can negatively impact the company. Regulatory compliance with environmental and other laws equate to substantial costs for the organization. ♦ Competitive environment – Waste Management incurs significant competition in all areas of business operations from other private or public companies and governmental municipalities. The environmental services industry in North America comprises of large national waste management companies and local or regional players that vary in size and financial resources. Another factor that limits Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 103 of 163 opportunities for Waste Management resides with large commercial and industrial companies that conduct internally driven waste collection and disposal. Industry dynamics that affect the competitive nature of the business include geographic location, the excellence of operations, availability and capacity for landfill disposal, and alternatives to landfill disposal such as recycling and incineration. An added unique dimension of the environmental services industry pertains to Waste Management and other companies competing with governmental entities. This competition typically occurs with local municipalities carrying out internal waste collection and disposal operations for residential and commercial purposes. This presents considerable challenges for Waste Management since local municipalities subsidize operating costs from tax revenues and other funding mechanisms such tax-exempt financing thereby creating a competitive advantage. Also, governmental municipalities and entities posses the ability for flow control and areas accessible for operations. ♦ Minimization of waste – Industrial manufacturers and producers are responding to the movement for minimizing waste. This transpires from a variety reasons which include the benefits of lower manufacturing and disposal costs, as well as a desire to implement systems that represent “greener” and environmentally friendly processes. Examples of these manufacturing developments consist of process changes, raw material alternatives, process equipment adjustments, and limiting the requirements for end of process waste control equipment by preventing remnants in earlier stages. With the advent of hazardous waste minimization and recycling programs across the United States, a continuing and ongoing effort to reduce waste places pressure and Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 4.0 – Internal Analysis Page 104 of 163 limits the potential growth for disposal services. With the increasing cost of waste disposal coupled with the “greener” movement, industrial manufactures and producers are indefinitely going to continue to limit the amount waste thereby minimizing the need for waste disposal. ♦ Fluctuating fuel costs – Prices for fuel and availability of supply are often times unpredictable. This situation arises from circumstances outside the control of Waste Management and is predicated by factors such as international, political, and economic developments. Waste Management is dependant upon fuel to run collection and transfer commercial motor vehicles as well as a host of equipment in conducting operations. Unquestionably, increases in fuel prices or supply disruptions are going to negatively impact the organization’s financial performance. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 105 of 163 5.0 Strategic Fit Analysis Strategic fit analysis evaluates the primary and support activities in relation to the value chain in order to determine if these activities function in an integrative manner with the aim of achieving a sustainable competitive advantage by delivering value to customers (Hitt, Ireland, & Hoskisson, 2005). Successful deployment of strategically fit integrated activities enhances the overarching corporate and business level strategies of an organization. Further assessment of strategic fit analysis reveals the viability of current strategies while providing direction for future endeavors through alternatives and recommendations. 5.1. Current Strategy Waste Management’s strategy resides with the company’s comprehensive offerings of environmental service solutions through the vast base of resources and assets while continually developing and implementing cost containment measures. Waste Management employs a directly related diversified corporate level strategy with a portfolio that consists of a wide array of environmental service offerings. The directly related diversified strategy is permitted by the sharing of numerous resources, assets, and activities across the organization. The directly related diversified strategy is appropriate since this position offers a bundle of environmental services that enable a competitive advantage in the marketplace. As a result of the abundant environmental service offerings, Waste Management pursues a differentiation business level strategy. Gaining a competitive advantage by providing various environmental service solutions allows Waste Management to compete on the basis of differentiation. Cost controls are Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 106 of 163 already a requirement to survive and competing on cost advantage alone is difficult to attain due to the nature of the industry which is typified by a heavy laden fixed asset infrastructure producing substantial fixed and variable costs. 5.2. Current and Long-Term Strategic Concerns The following issues pose significant strategic implications for Waste Management: 1. Strengthening the bundle of service offerings through existing resources and innovative measures. 2. Continuing to advance environmentally friendly and greener services. 3. Balancing the core revenue source of collection for landfills with alternative means of disposal that diversify away from the finite capacity and negativity associated with landfills. 5.3. Identification and Assessment of Activities for Strategic Fit An activity analysis of Waste Management will demonstrate that the primary and support functions allow for a strategic fit and alignment of activities with the overall strategy of the company. Internal Resources and Capabilities for Facing External Environmental Challenges Waste Management’s resources and capabilities particularly with a recognizable brand name along with abundant assets enable the organization to offer a wide assortment of environmental service solutions which provide substantial possibilities for further differentiation in services and additional advancements in the marketplace. The Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 107 of 163 company’s environmentally conscious innovative culture and excellent leadership permit unprecedented opportunities for service differentiation in a unique industry where cost controls are already a requirement to survive and competing on cost advantage alone is difficult to achieve. Waste Management faces several external challenges while competing in the environmental services industry. Such obstacles include compliance with various regulators, strong competition, and a conservation or greener movement for waste minimization. Waste Management is in a position where external challenges serve as areas for potential opportunities. Activities Enabling a Strategic Fit An integrated system of activities is paramount for maintaining a sustained competitive advantage (Hitt, Ireland, & Hoskisson, 2005). Waste Management’s interlocking system of activities aid the organization with this endeavor. The activities also align with the overall strategies of the company which pertain to the corporate and business strategic initiatives. The following activity system map illustrates the inter- workings of these activities. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 108 of 163 “Best Place to Work Trading Program” Collection Brand Name Disposal Value From Operations Infrastructure Fleet Route System Savings Integrated Environmental Service Transfer Offerings Stations Landfill Wheelabrator Needle Gas Operations Transportation Disposal Projects Management In-Plant Services Recycling Waste To Energy Program Cost Excellent Controls Leadership Environmentally Conscious Services Partnering SAP/ERP Industry with the EPA Systems Leadership Role Volume Purchasing Efficiencies Environmentally Conscious Innovative “Think Green” Total Culture Promotional Customer Program Satisfaction Community Relations Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 109 of 163 The dark colored green objects represent higher-order themes which are supported and implemented through the light colored green clusters of tightly linked activities (Porter, 1996). The entire system of activities facilitates the overarching strategy of Waste Management while simultaneously fostering a sustained competitive advantage. A collection of activities purports significant barriers for imitation by rival environmental service providers. The resources and capabilities of Waste Management propel the robust environmental service offerings. This position allows for a sustained competitive advantage and creates opportunities for further differentiation of services. 5.4. TOWS Matrix The concluding portion of the strategic fit analysis employs the use of the TOWS matrix developed by Professor Heinz Weihrich. This situational model provides a systematic analysis that links the external threats and opportunities with the internal weaknesses and strengths of an organization (Weihrich, 2006). The SWOT analysis is expanded upon with the TOWS matrix where strategy formulation emerges. The unique and dynamic application of the TOWS matrix transforms the SWOT analysis by illustrating how strengths are utilized to take advantage of opportunities or counter threats. Also, weaknesses are examined for the purpose of overcoming deficiencies in order to exploit opportunities. This process of strategy formulation yields strategies, tactics, and actions for an effective and efficient coupling with organizational objectives and the mission. The key beneficial outcome of the TOWS model occurs with the generation of alternatives that lead to choices for recommendations. The following Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 110 of 163 TOWS matrix applied to Waste Management illuminates numerous alternatives for discussion: Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 111 of 163 INTERNAL FACTORS STRENGTHS (S): WEAKNESSES (W): -Brand Name recognition -High debt structure -Vast resources/asset base -Temporary employees -Fleet route system savings -Overly dependent on inorganic -Transportation management growth -Environmentally conscious services -Volume growth -Landfill gas projects -Volume purchasing efficiencies -Landfill dynamics -SAP/ERP system -Excellent leadership -Environmentally conscious innovative culture -Integrated environmental service offerings -Excellent website -“Best Place to Work Program” -Driver sales referral program -The “Think Green” promotional program EXTERNAL FACTORS -Industry leadership role OPPORTUNITIES (O): SO STRATEGIES: WO STRATEGIES: -Increased demand for environmental Alternative 1 – Offer expanded service Alternative 5 – Seek expanded/ services options alternative services to diversify -Single source supplier of away from the collection/landfill environmental services Alternative 2 – Continue to foster model -Recycling conservation/greener services -Planning for the divestment of Alternative 6 – Capitalize on underperforming operations along Alternative 3 – Further implementation environmentally conscious with organizational restructuring of information management systems innovative culture to promote -Information management systems organic growth THREATS (T): ST STRATEGIES: WT STRATEGIES: -Cyclical nature of business Alternative 4 – Bolster partner -Regulatory environment relationships with regulators and -Competitive environment communities to seek environmental -Minimization of waste service solutions -Fluctuating fuel costs Alternative 1 – Offer expanded service options to counter competitive environment Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 112 of 163 5.5. Alternatives The TOWS matrix coupled with the SWOT analysis produced the following alternatives: Alternative 1 – Offer expanded service options (SO and ST Strategy: Strong) As identified with the original SWOT analysis, the movement towards providing environmental solutions as a bundle of services and also as a single source supplier is a developing standard in the industry. Waste Management occupies the ideal position to capitalize on this trend due to the expansive resources of the company. This is also congruent with Waste Management’s differentiation strategy of offering comprehensive environmental service solutions. Waste Management could modify existing services in an effort to achieve more responsiveness to customer and marketplace needs or innovate and develop new services. An example of possible growth for Waste Management might involve the modification or alteration of the collection line of service. New developments for the collection process include programs such as customers incurring charges for actual waste generated rather than flat of fixed rates which are the predominant industry standard. This type of program is analogous to utility providers assessing charges on actual consumption of energy rather than a flat rate. Another analogous comparison with utility providers centers on the theme of conservation. Since energy conservation is a nationwide concern, charging consumers for actual energy consumed reinforces behavior to conserve power usage. Similarly, assessing fees to consumers for actual waste generation as opposed to a flat rate encourages environmentally friendly Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 113 of 163 behavior. Such a program in conjunction with recycling by partnering with communities and regulators could prove attractive for Waste Management. Alternative 2 – Continue to foster conservation/greener services (SO Strategy: Strong) As a strength, Waste Management possesses an environmentally conscious innovative culture as mentioned in the SWOT analysis and environmentally friendly/greener solutions for the industry represent an ongoing and long-term reality for success. Undoubtedly, Waste Management is the leader with environmentally friendly programs. The challenge for Waste Management is to strike a balance between the core revenue sources of collection for landfill disposal with alternative means of waste removal. Alternative 3 – Further implementation of information management systems (SO Strategy: Strong) Recently, within the past couple of years Waste Management has enacted information management systems which have produced substantial benefits for the company. This serves as an opportunity for further development. Waste Management could cease the stock buy back program from internally generated earnings and plough these scarce resources back into the organization by investing in information systems that systematically analyze projects or initiatives for the future. Alternative 4 – Bolster partner relationships with regulators and communities to seek environmental service solutions (ST Strategy: Medium) Waste Management attains the position as an industry leadership role model through environmentally friendly service initiatives and partnering with the Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 114 of 163 Environmental Protection Agency and communities. Environmentally friendly service solutions are a long-term reality and compose a significant portion of the company’s broad scope of environmental offerings. Waste Management should continue to cultivate strong working relationships with regulators and communities. Alternative 5 – Seek expanded/alternative services to diversify away from the collection/landfill model (WO Strategy: Strong) Landfill dynamics embody a weakness for Waste Management. Available landfill capacity is a serious long-term concern for the industry and Waste Management is in a position to seek other viable alternatives which can ultimately turn this weakness into a strength. Finding an equilibrium between the collection for landfill disposal model with differing means of disposal that diversify away from the finite capacity and negativity associated with landfills presents considerable strategic implications for Waste Management. Alternative 6 – Capitalize on environmentally conscious innovative culture to promote organic growth (WO Strategy: Medium) Waste Management must seek ways to grow internally instead of depending upon inorganic growth. The company’s culture and resources should enable the ability to grow internally going forward. Constant acquisitions are costly from a variety of standpoints and surely contribute to the organization’s high debt structure. Now that the company is stabilized from the turnaround mode period, an emphasis for organic growth should ensue with an aim towards substantial debt reduction. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 5.0 – Strategic Fit Analysis Page 115 of 163 5.6. Alternatives to Recommendations Logical decisions must transpire to build a sound strategy formulation based on alternatives that provide choices for recommendations. Incorporating the TOWS matrix yielded SO, ST, and WO strategies where the most pragmatic selection of alternatives lead to the following recommendations: • Recommendation I o Alternative 3: Further implementation of information management systems • Recommendation II o Alternative 1: Offer expanded service options o Alternative 2: Continue to foster conservation/greener services o Alternative 4: Bolster partner relationships with regulators and communities to seek environmental service solutions o Alternative 5: Seek expanded/alternative services to diversify away from the collection/landfill model Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 116 of 163 6.0 Recommendations After the detailed review of Waste Management Inc., the group offers two recommendations to allow the firm to remain competitive in the waste disposal market and to continue to grow and be successful. These recommendations coincide with the strategic analysis that was previously performed and will help give WMI a competitive advantage in the future. The recommendations consist of the following: I. Discontinue the stock buyback program and invest in long-term projects. Scientifically decide what projects to invest in by implementing project portfolio software. II. Implement programs that allow consumers to pay for only the waste they generate and help increase recycling efforts in communities. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 117 of 163 6.1. Recommendation I According to Waste Management’s 2005 Annual Report, 2005 was a year of change for Waste Management. In many ways, it was a year of changing the mindset of the company and how it thinks. The company changed its view of time; instead of just looking at the next quarter and the next year, it now looks to the next decade. These changes have caused Waste Management to look at everything it does as an investment. The stakeholders in these investments include employees, customer, communities, shareholders and the environment. The company now evaluates it investments-in capital, in resources, in the role as the industry leader-and only continues the commitment if it benefits the stakeholders. With this commitment in mind, we have evaluated the current business strategy with regard to the stock buyback program and recommend the company discontinue this practice. Instead, the company should begin to invest in research and development to find more profitable and environmental friendly ways of reducing solid waste. In 2005, management began to approach the running of the business more as a science, beginning to rely on solid facts and good data. This mindset, as well as the practice of approaching business decisions as investments, has led us to recommend the implementation of project portfolio software to more scientifically and systematically evaluate the selection of proposed projects and progress of new projects. 6.1.1. Objectives A fundamental question in the new product battleground is, “How should corporations most effectively invest its R&D and new product resources? This is what Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 118 of 163 portfolio management is all about-resource allocation to achieve corporate new project objectives. Portfolio management of projects and new products is a major business challenge. Today's new projects help decide what products Waste Management will offer tomorrow. Portfolio management for new products is a dynamic decision process wherein the list of active new products and projects are continuously reviewed and revised. During this process, new projects are evaluated, selected, and prioritized. Existing projects can be accelerated, killed, or de-prioritized and resources are allocated (or reallocated) to the active projects. Much like stock market portfolio managers, senior executives who optimize their R&D investments have a much better chance of winning in the long run. The crucial need for successful selection of R&D spending has heightened interest in portfolio management, not just for the technical community, but in the CEO's office as well. Recent benchmarking studies have identified portfolio management as the most inadequate area in new product management. Management teams confess that there are rarely serious go/kill decisions or go/kill decision points. As a result, companies are facing too many projects for the limited resources available. Considering the following criteria will allow Waste Management to correctly allocate resources to new projects. • Maximize Value-To allocate resources in order to maximize the value of the portfolio in terms of company’s key objectives (such as profitability, ROI, acceptable risk). A variety of methods are employed to achieve this maximization goal, ranging from financial methods to scoring models. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 119 of 163 • Achieve Balance-To achieve a desired balance of projects in terms of a number of parameters: risk versus return; short-term versus long-term; and across various markets, business arenas and technologies. Typical methods used to reveal balance include bubble diagrams, histograms and pie charts. • Align Business Strategy-To ensure that the final portfolio of projects reflects Waste Management’s business strategy and that the breakdown of spending aligns with the company’s strategic priorities. The three main approaches are: top-down (strategic buckets); bottom-up (effective gating and criteria) and top- down & bottom-up (strategic check). It is our recommendation that Waste Management should immediately begin researching which project portfolio software would best integrate with its other computer software-there are several that are compatible with SAP, the soft are currently being used at Waste Management. The software package should be selected within three months and implementation should begin immediately thereafter. The software should be up and running in Houston’s headquarters within nine months and should not exceed a cost of approximately $1.5 million. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 120 of 163 Figure 6.1-1: New Product Development and Introduction (NPDI) (Source: http://www.sap.com/solutions/npdi/pdf/BWP_NPDI.pdf, 2006) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 121 of 163 Business Strategy & Product Innovation & Technology Strategy 1. Strategic 50,000 Buckets ft. Gating Process: Portfolio Review: • Individual • Holistic 2. Project projects • All Projects Decisions: • In depth • Right mix? 10,000 • Go/Kill • Right ft. Go/Kill Prioritization decisions priorities? • Based on • Alignment? scorecard Figure 6.1-2: The Portfolio Management System with its Key Components (Source: http://prod-dev.com/portfolio-diagram.shtml, 2006) 6.1.2. Deliverables Deliverables in the first phase of implementation include the specifications required by Waste Management. These specification include, but are not limited, the software must integrate with SAP, the software currently being implemented. The software must be able to be utilized mainly at the Houston headquarters, but may also need to be used by branch offices. The software chosen needs to be able to assess at least 150 projects at any one time and be expandable. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 122 of 163 The second phase of deliverables defines specifically what hardware will be necessary to run the program and how much custom programming will be necessary. The third actual beta testing at the Houston headquarters for selected projects. This test will include ensuring data flows freely between the main system(s) and the project portfolio software. After successful testing, the system will be on-line for the Houston office and a technical manual will be completed. When this is in place and has been proved successful, the software would begin to be available for data analysis at the branch offices. 6.1.3. Milestones The following Figure 6.1-3 is an approximate timeline needed to effectively implement the project. May 1 August 1 January 1, 2007 April 1 May 1 Begin Software Search Define Hardware and Begin beta testing at HQ Technical Manual Select Sites to Determine Custom And HQ on-line Have Access Programming Figure 6.1-3: Timeline to Implement Project Effectively As previously discussed, the selected software must be able to integrate with the current software used at Waste Management. The software should be able to analyze at least 150 projects at one time and be expandable for future growth. Security features must also be included. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 123 of 163 Ideally, the software would include a process such as the one shown below: Figure 6.1-4: The Stage-Gate® Process (Source: http://prod-dev.com/stage-gate.shtml, 2006) Leading companies have overhauled their new product processes, incorporating the critical success factors discovered through best practice research, in the form of a Stage-Gate® new product process. According to a Product Development & Management Association (PDMA) best-practices study, 68% of leading U.S. product developers now use some type of Stage-Gate® process (R. Cooper, 2001). A Stage-Gate® process is a conceptual and operational road map for moving a new-product project from idea to launch. Stage-Gate® is a product development process that segments the effort into distinct time-sequenced stages separated by management decision gates. Multifunctional teams must complete a prescribed set of related cross- functional tasks in each stage prior to obtaining management approval to proceed to the next stage of product development. The software will be installed by a contract company, but once in use, the Waste Management Information Technology (IT) department will be the trainers. The in-house IT department will also be responsible for maintaining the system. The project management teams will be responsible for the evaluation and integrity of the data. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 124 of 163 6.1.4. Risk Assessment The Waste Management IT department will be responsible for obtaining all the necessary information, monitoring the implementation, timing and budgeting as well as ensuring the necessary personnel has received training from the outside contractor. At the point the system is turned over, the company’s IT department should verify the system is working as designed in terms of risk assessment, financial returns, prioritization, etc. for the project management teams, as well as the executives. Companies without effective new product portfolio management and project selection face a downhill road. Many of the problems that plague project development initiatives in businesses can be directly traced to ineffective portfolio management. According to studies done by Drs. Cooper and Edgett, when portfolio management is lacking, the following problems may arise: 1. A Strong Reluctance to Kill Projects There are typically no consistent criteria for Go/Kill decisions. As a result, projects are simply added to the 'active list' of projects with no clear directional focus. The end result is: resources are thinly spread; long times to market; poor quality of execution; and higher-than-acceptable failure rates. 2. Poor Go/Kill & Project Selection Decisions This leads to many mediocre projects in the pipeline (i.e. extensions, modifications, enhancements) and a lack of high return projects. Those few good projects that do exist are usually starved of resources and fail to achieve their full potential. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 125 of 163 3. The Wrong Projects are Selected Decisions are not based on facts and objective criteria, but rather, on politics, opinion & emotions (i.e. manager's pet projects). Many of these 'ill-selected' projects fail to bring reward to the company. 4. Strategic Criteria are Missing There is no strategic direction to projects selected and therefore, projects are not aligned with the business's strategy. This means that projects are typically a poor fit with strategy and overall spending does not reflect the strategic priorities of the business. It is very difficult to put a dollar value on the cost of not implementing this recommendation. The risk to the company is not the actual cost of approximately $1.5 million dollars for software and implementation. This is a tangible cost, but the lost opportunities could be infinite if the projects are not implemented or the wrong projects could consume critical resources. If the correct projects are chosen, the results provide a portfolio that is properly balanced and most importantly, supports Waste Management’s business strategy. 6.1.5. Long-Term Benefits One of the driving forces in the industry today is the rising cost of fuel. Waste Management is already positioned to effectively manage this factor. With its current Wheelabrator technology, the company can turn waste-to-energy and harness it for a variety of uses. The company currently owns or operates 17 of these facilities and six independent power plants (IPP) that are capable of processing up to 24,0000 tons of solid waste each day. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 126 of 163 Our above recommendation proposes that Waste Management begin investing in long-term projects. Along with the rising costs of fuel, the company needs to find ways to deal with the limitations currently being imposed by governmental regulations and the reductions in landfill space. The Wheelabrator can reduce the need for landfill space, while at the same time, produce energy. With the implementation of the project portfolio software, Waste Management can begin to assess which geographical areas would best benefit from converting current landfills to waste-to-energy facilities. The Wheelabrator technology has been profitable and given the current demand for oil, it should remain profitable in the long-term. Investing in Wheelabrator technology would allow Waste Management additional ways to increase revenues in a mature market. In addition to Wheelabrator construction, Waste Management needs to address the environmental issues concerning solid waste disposal. The U.S. continues to produce trash at a rate of 4.5 lbs per person per day (Interview with David Steiner on the history channel, April 23, 2006). Continually disposing of this trash in landfills is no longer a long-term viable solution and at this time, recycling does not seem to return the profits necessary to grow this side of the business (which leads to our next recommendation). Implementing the project portfolio software will assist the company with research and development decisions that can better address these issues in a way that is systematic, “scientific,” and produces better long-term profits for the company. Ideally, it would also provide technology that would benefit the environment; this is what consumers expect of an industry leader. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 127 of 163 6.2. Recommendation II With the increase in demand of more environmentally friendly services and to provide a one-stop-shop of waste collection and recycling, it has been proposed that the company institute a new program called ‘Pay To Be Green’. The main goal of this program will be to reduce the amount of trash the everyday consumer and commercial businesses create and force them to increase their recycling efforts to save the environment. The underpinnings of the program are properly aligned with the activities of Waste Management as discussed in the strategic analysis since the normal collection and recycling functions reinforce and optimize the entire activity system of the organization. 6.2.1. Objectives The program can provide many benefits to waste management’s shareholders and customers. The primary benefit to the consumers is the equity it will create in the billing process. Currently, the majority of Waste Management’s billing is done on a set price for all of the consumers, no matter how much waste the consumer generates. This in turn has the tendency to overcharge consumers who produce minimal waste and undercharge those who create a great deal of waste. This would bring the billing for waste collection service in line with the other utility bills consumers currently pay. Further benefits would be economic and environmental sustainability. Many communities have voluntary recycling programs that provide bins for each household and are collected once a week. In most cases, consumers don’t want to take the time to drag their recyclable goods to the bin when it is easier just to toss it in the trash. The Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 128 of 163 primary reason for this is consumers have no economical benefit to recycling. They pay a flat rate for the collection, whether they recycle or not. Human nature has always been that a person will not change their normal habits unless forced to do so. Under this program, there will be economic benefits to recycling and the consumer can take control of their waste disposal bill. The added benefit to WMI would be the re-selling of the recyclable goods to industry to create more products for the consumer to purchase at a cheaper and more environmentally friendly fashion. This will also save the manufacturers money and time by reducing the amount of natural resources that need to be extracted to produce their products. There are programs in use in communities across the nation and are showing to be a successful endeavor. The problem is that the communities are the primary force behind the initiation of these programs. This forces the waste disposal companies to adhere to these programs or leave the community. If WMI takes the initiative to introduce the programs to the communities first and control the creation and implementation in the community, this will allow them to possibly force competitors out that are not able to immediately change to the program. It will also help the brand image of WMI that has been recently branded as environmentally unsound. Specifics of the Program The main focus of the program is to charge the consumer only for the waste they create and rewarding them for recycling by reducing their current monthly flat fee bills. The way this is done is by the distribution of resources to hold, collect, and dispose of the waste and recyclables that the consumer generates. This program could also reduce the amount of money commercial businesses spend each year in waste disposal Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 129 of 163 if recycling programs were initiated for this sector. The products needed to undertake this task is outlined below. Residential Collection Bins for Waste – Collection bins will be ‘rented’ to the consumer on a monthly basis to allow the waste to be measured by volume or weight. The consumer can decide whether they wish to be billed by the volume of the bin, or by the weight of the waste in the bin. Sizes for the bins could range from 30 to 100 gallon sizes. Each bin will also have a bar code placed on the side to allow the truck to properly bill the consumer for the weight of the bin. To help further reduce improper waste disposal in the bin by outside parties that are not affiliated with the homeowner, a locking mechanism could be activated by the consumer before the bin is placed on the curb. The collection truck could electronically release the lock as it reads the barcode on the bin. This would deter neighbors from throwing trash in another homeowners bin to reduce the amount they would pay. There would also be special bins that would be available during the grass cutting season to handle all yard waste. This would be charged by volume and the waste taken to compost piles to be resold as mulch, another revenue generator for Waste Management, Inc. Tags for Individual Waste Bags – Due to different pricing strategies effectively working in different parts of the nation, an alternative to the collection bins is to buy tags or stickers to attach to each bag of trash to be collected. These stickers will range in value to correspond to the size of bag they are attached to. Yard waste bags would require a smaller value sticker, since the contents can be recycled. There will also be stickers provided for large item collection, such as appliances, furniture, or other large bulk materials. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 130 of 163 Residential Collection Bins for Recycling – Recycling bins will be provided to each homeowner and will be collected free of charge to the consumer. The price for the service will be included in the waste collection fees. A small fee could be charged if the community wishes to lower the price of the normal waste collection. Commercial Bins for Recycling – Bins could be provided to office buildings and commercial businesses for the collection of all types of paper waste that is generated. This would include newspapers, magazines, catalogs, junk mail, office white paper, phone books and cardboard boxes. This is a large portion of waste that these institutions generate on a daily basis. Due to the confidentiality of these materials, the trucks that collect these materials would be equipped with shredding devices that would reduce the waste to confetti size pieces. Industrial Bins for Bulk Materials – Large metal bins would be provided to industrial sites for certain types of recyclable materials. This could include wood only bins for construction of homes, demolition, and environmental disaster cleanup. Other bins could be provided to remove different types of metals that are used in all industries. The metals would not be required to be removed at the site, but would be separated in the collection yards. Initial Costs of the Program The entire program would be fairly easy to initiate since WMI already has a good infrastructure in place in many communities. The ‘Pay to be Green’ project could be executed in under a year’s time with a minimal cost. The total estimated cost is outlined below. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 131 of 163 Initial Cost for Program (Community of 100,000 Residents) Dollar Amount Public Advertising $ 400,000 City Meetings and Advisory Boards $ 20,000 Refurbishing Current Trucking Fleet $ 550,000 Ordering of Waste and Recycling Containers $ 1,200,000 Implementing Tags and Distribution $ 100,000 Delivery of Containers and Instructions $ 150,000 Increase in Routes and Trucks $ 450,000 Creation of New Recycling Locations for Consumer Drop-Off $ 830,000 Increase Hiring of Personnel $ 600,000 Government Subsidies for Creation of Program $ (1,000,000) Total Cost for initial Start-Up: $ 3,300,000 Table 6.2-1: Waste Management, Inc. Cost of Initial Start-Up of Program For the pricing structure above to succeed, the communities already have collection and recycling programs in use. This would allow for minimal costs to be absorbed by WMI. In most cases, the current waste collection trucks already in use would only have to be fitted with a hydraulic lift system in order to accurately weigh the collection bins for billing. In some cases, the consumer will only be charged a flat fee for the bin, where no modification of the truck will be necessary. The recycling trucks will already exist in the area and should be adequate for the increased amount of materials. There may be a need for additional recycling trucks, but WMI would already have these trucks available in their fleet. 6.2.2. Deliverables As mentioned before, the entire process of implementation of the project will take approximately one year. This will be adequate time to teach a community of around 100,000 residents how to ‘Pay To Be Green.’ The following schedule provides details on the planning, design, implementation, and post-review of the entire program. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 132 of 163 Schedule for events for residential customers: Time Dates of Management Approval of Process Frame Execution June 3, 2006 – Development of Program by WMI Management 6 Weeks July 15, 2006 July 15, 2006 – Gathering of Resources in WMI 4 Weeks August 12, 2006 August 12, 2006 – Creating Task Force to Design and Implement 2 Weeks August 26, 2006 August 26, 2006 – Final Documentation of the Program 2 Weeks September 9, 2006 Milestone: WMI Formal Announcement of New September 9, 2006 Initiative Evaluation of Cities and Communities Formal Introduction and Negotiations with Cities September 9, 2006 – 8 Weeks and Communities November 4, 2006 November 4, 2006 – Gaining approval to begin process. 1 Week November 11, 2006 Distributing information to residential November 11, 2006 – 4 Weeks households December 9, 2006 Meeting with local retailers to explain tag December 9, 2006 – 3 Weeks system December 30, 2006 Milestone: Complete Information Sharing and January 1, 2006 Begin Implementation Initiating Program Acquiring necessary materials to implement December 4, 2007 – 8 Weeks program January 29, 2007 January 29, 2007 – Distribution of tags to the retailers 4 Weeks February 26, 2007 Ordering period for Residential consumers of February 26, 2007 – 4 Weeks bins March 26, 2007 Begin showing changes in billing system in each March 26, 2007 – 1 Week consumer’s monthly bill. April 2, 2007 April 2, 2007 – Distribution of bins to consumers 3 Weeks April 23, 2007 Trial period for collection and additional April 23, 2007 – 4 Weeks information distribution May 21, 2007 Formal Implementation of program with May 21, 2007 – 2 Weeks households June 4, 2007 Milestone: Complete Implementation of June 4, 2007 Program Post-Monitoring of the Program Monitoring period to determine effectiveness of 12 June 4, 2007 – program and recommend changes. Weeks August 27, 2007 Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 133 of 163 Bring recommendations to management and August 27, 2007 – 1 Week city council. September 3, 2007 September 3, 2007 – Begin implementation of changes to program 4 Weeks October 1, 2007 Milestone: Complete Changes and Upgrades October 1, 2007 to Program Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 134 of 163 ID Task Name Duration Start Finish Qtr 3, 2006 Qtr 4, 2006 Qtr 1, 2007 Qtr 2, 2007 Qtr 3, 2007 Qtr 4, 2 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct 1 Managem ent Approval of Pr oce ss 75 days Sat 6/3/06 Sat 9/9/06 2 Development of Program by WMI Management 32 days Sat 6/3/06 Sat 7/15/06 3 Gathering of Resources in WMI 21 days Mon 7/17/06 Sat 8/12/06 4 Creating Task Forc e to Des ign and Implement 11 days Mon 8/14/06 Sat 8/26/06 5 Final Documentation of the Program 11 days Mon 8/28/06 Sat 9/9/06 6 Milestone : WMI Form al Announcem ent of New Initiative 0 days Sat 9/9/06 Sat 9/9/06 9/9 7 8 Evaluation of Citie s and Com munities 85 days Sat 9/9/06 Mon 1/1/07 9 Formal Introduction and Negotiations w ith Cities and Communities 42 days Sat 9/9/06 Sat 11/4/06 10 Gaining approv al to begin process 6 days Mon 11/6/06 Sat 11/11/06 11 Distributing information to Residential Households 22 days Sat 11/11/06 Sat 12/9/06 12 Meeting w ith Local Retailers to explain Tag System 17 days Sat 12/9/06 Sat 12/30/06 13 Milestone : Complete Inform ation Shar ing and Begin Implem entation 0 days Mon 1/1/07 Mon 1/1/07 1/1 14 15 Initiating Program 133 days Mon 12/4/06 Mon 6/4/07 16 Ac quiring necessary materials to implement program 43 days Mon 12/4/06 Mon 1/29/07 17 Distribution of tags to the Retailers 21 days Mon 1/29/07 Mon 2/26/07 18 Ordering period for Residential Cons umers of bins 21 days Mon 2/26/07 Mon 3/26/07 19 Begin show ing changes in billing sy stem in each consumers monthly bill 6 days Mon 3/26/07 Mon 4/2/07 20 Distribution of bins to Consumers 16 days Mon 4/2/07 Mon 4/23/07 21 Trial period for collection and additional information distribution 21 days Mon 4/23/07 Mon 5/21/07 22 Formal implementation of program w ith hous eholds 13 days Thu 5/17/07 Mon 6/4/07 23 Milestone : Complete Im ple mentation of Program 0 days Mon 6/4/07 Mon 6/4/07 6/4 24 25 Post-M onitor ing of the Program 86 days Mon 6/4/07 Mon 10/1/07 26 Monitoring period to determine effectiveness of program and recommend changes 61 days Mon 6/4/07 Mon 8/27/07 27 Bring recommendaitons to Management and City Council 6 days Mon 8/27/07 Mon 9/3/07 28 begin implementation of changes to program 21 days Mon 9/3/07 Mon 10/1/07 29 Milestone : Complete Changes and Upgrades to Program 0 days Mon 10/1/07 Mon 10/1/07 10/1 Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 135 of 163 In order for the ‘Pay To Be Green’ program to be successful, the timeline needs to be strictly followed and all of the milestones must be met. Any delay will cost additional funds which will increase the overall cost of the project. The original design and implementation takes a year to complete. The post-monitoring period lasts a little over five months, which is adequate time to review and make any changes to the program that the residential consumer demands. 6.2.3. Milestones The primary milestones must be met if the project is to be successful. The schedule in Section 6.2.2 outlines the specific milestone and the time it must be completed. If any of these are missed, this will delay the project and could drastically increase the cost of implementation. The first milestone occurs around 14 weeks after the initial start of the development of the program. This one deals with the final design of the program completed internally and formal introduction to the public of Waste Management’s new initiative. The upper management within the company must fully back the program in order for it to succeed. The second milestone is one that will start the project rolling in a community. This step should take around 15 weeks to complete. After many weeks of review with the city government and officials in the community, the city gives formal approval and signing of the contracts to start the official implementation of the project. The residents in the community will also be informed and educated in the new program to show them the many benefits that are available. Residential involvement and understanding is critical if there is hope of the project succeeding. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 136 of 163 The next milestone is the completion of the implementation of the project. This is where the project begins to pay off for Waste Management. This step actually begins around four weeks before the second milestone is met. This is when Waste Management begins to order the materials to implement the project and occurs right after the city gives formal approval of the project. This is to help minimize the lead time needed to manufacture the bins and print the tags for the program. This step should take around 23 weeks to complete. After the milestone is met, the program has been fully initialized and is making profits for the firm. This is where the year of design and implementation has ended and the monitoring of the program begins. The final step is the post-monitoring of the successes and problems that are occurring within the newly implemented program. The monitoring and updating of the program should take around 17 weeks. This will help provide Waste Management with information that will allow it to modify and enhance the program for future implementation in additional communities. This is the quality assurance portion of the project that, in the long run, will save Waste Management substantial amounts of money in future implementation of the ‘Pay To Be Green’ program. 6.2.4. Risk Assessment With any new program, there exists a certain amount of risk that is inherent in business. No program has ever worked exactly as designed and many require modifications during and after the implementation period. This should be stressed to any company board and the consumers before the project is even considered. The ‘Pay To Be Green’ program is no different than any other project when in comes to risks and problems that need to be addressed in order to be successful. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 137 of 163 The biggest risk is lack of acceptance of the program by residential customers, which turns into lack of participation and dissatisfied consumers. With any new initiative, most consumers naturally fear what they don’t fully understand. It is human nature to be afraid of something you are not comfortable with. This could devastate the program if it happens to a majority of the residential customers. This is where good literature and large efforts of advertising is critical. The more the consumer knows, the more likely they are to participate. The initial cost may seem large to many executives in the company, but this money will be recouped in a few short years. The amount of recyclable products gathered in the first two years could be sold for a large profit. This is due to the demand for recyclable products increasing due to the cost of raw materials being on the rise. Recycling is expected to increase to almost four times its original rate when the program started. The amount of yard waste is also showing drastic increases. This is also an area of profit for Waste Management. The company can sell the composted material as landscape mulch through its own facility or with the help of a 3rd party contractor. The estimated amount of materials collected in the first five years of the ‘Pay To Be Green’ program is shown in Table 6.2-2 and Figure 6.2-1. Typical community of 100,000 people Yard Waste Year Waste Landfilled Waste Recycled Collected 1 55000 4000 0 2 44000 5000 12000 3 42000 7000 14000 4 41000 10000 15000 5 39000 15000 16000 Table 6.2-2: First Five Years – Total Tonnage of Each Item Collected Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 138 of 163 Waste Stream for the First Five Years of the 'Pay To Be Green' Program 70000 60000 Tons of Waste 50000 40000 30000 20000 10000 0 1 2 3 4 5 Yard Waste Collected Years Waste Recycled Waste Landfilled Figure 6.2-1: Tonnage of Materials Collected for the First Five Years of the ‘Program Another risk associated with the program is the increase in illegal dumping that might occur due to refusal to pay the fees that are required. This is something that has happened in other programs that have been initiated by city governments in the past. The good news is that it has always been on a small scale and only lasts for a few years. After this time, there are still cases reported to the authorities, but they are few and far between. The local law enforcement should crack down as much as possible on illegal dumping, but due to the dumping occurring on such a small scale and scattered over a large area, the police participation is usually minimal. There are usually too many larger crimes that need to be dealt with and manpower could not be spared. The fines and criminal charges need to be in place and to some extent severe in the punishment. This alone is usually a large enough deterrent to keep illegal dumping from ever happening. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 139 of 163 6.2.5. Long-Term Benefits The most significant long term benefit for the company and its stakeholders in the amount of increased revenue that will be created through the selling of the recyclable materials Waste Management is collecting. The price of oil is increasing rapidly over the last couple of years and many are unsure of where it will end. Raw materials, especially aluminum, steel, and copper, are continually rising in price to harvest out of the ground. Industries are now paying good prices for these metals when they are recycled. This is being found to be a cheaper way of producing the raw materials that are needed. Below is a graph that shows the increasing price of oil. Oil is the main ingredient for all plastics manufactured today and, at these high prices, plastics should not be a product that is thrown away on a daily basis. Oil is also the primary ingredient in the substance that Waste Management spends a great deal of money on each year, diesel fuel for their trucks. With the immense size of their trucking fleet, the company spends millions on fuel each year. The problem is that many of these trucks are running recycling routes with very poor results in the amount of product they are collecting. Many communities have voluntary recycling programs that very few people participate in. This is primarily due to the increased work that is involved to recycle and there is no benefit provided to the consumers. By instituting the ‘Pay To Be Green’ program, residential and commercial customers will have initiative to recycle due to the cost savings that could be available due to the decrease in the amount of waste generated and disposed of. This not only provides monetary benefits, but it also helps to save the environment for future generations to enjoy. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 140 of 163 Figure 6.2-2: Crude Oil Futures Prices From April 1, 2005 to April 21, 2006 (Source: Energy Economics Newsletter, 2006) There will also be savings in the slower filling of existing landfills. The program will increase the life of the landfills and decrease the amount of capital spending required to continually acquire and build new ones. This will not only help place the revenue in more advantageous projects within the company, it will also show the stockholders that Waste Management has a environmentally friendly path into the future. The brand image of the company dramatically increase for the better and will now be seen as one of the leaders in the fight to reduce, reuse and recycle. At this current stage, Waste Management could use some good publicity to increase the brand image that has been tarnished heavily in the last 20 years. As previously mentioned, Waste Management, Inc. stands to gain considerable amounts of revenue from the institution of the ‘Pay To Be Green’ program. In Table 6.2- Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 141 of 163 4 is a proforma statement of operations for the next five years. The table is based on the following costs and revenues for waste, recycling, and yard waste recycled. Product Cost per Ton Revenue per Ton Solid Waste $88.02 $75.00 Recycling $88.50 $500.00 Yard Waste Recycling $35.02 $200.00 Table 6.2-3: Costs and Revenues for Products Collected by Waste Management, Inc. The amounts in Table 6.2-3 are applied to the expected tonnage amounts of waste and recycled materials to be collected. The costs and expenses are then calculated for what normally would be incurred from the waste collection and disposal. The first year, 2006, shows the one-time operating expenditure that will be incurred for the creation and implementation of the ‘Pay To Be Green’ program. This year will also show a government subsidy paid to Waste Management for instituting a program to help protect the environment. Due to the initial costs, the company will show a loss for this community in the year 2006. The proforma shows that after an initial decrease in the first years profits due to initialization costs, the remaining years show a healthy profit that continues to grow. The program will pay for itself partway into the third year, which is in 2008. Profits will continue to climb in the future years of the program and as it becomes more established in the community. This will also be a point where participation has increased. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 142 of 163 Waste Management, Inc. Proforma Statements of Operations Years Ended December 31 2010 2009 2008 2007 2006 Operating Revenues: Landfill Waste 2,925,000 3,075,000 3,150,000 3,300,000 4,125,000 Recycled Waste 7,500,000 5,000,000 3,500,000 2,500,000 2,000,000 Yard Waste 3,200,000 3,000,000 2,800,000 2,400,000 - Total Operating Revenues 13,625,000 11,075,000 9,450,000 8,200,000 6,125,000 Costs and expenses: One-time operating expenditures - - - 3,280,000 Operating (excluded dep) 5,332,120 5,034,000 4,823,420 4,754,340 5,219,580 Selling, general, and administrative 1,148,019 1,114,582 1,082,118 1,050,600 1,020,000 Depreciation and amortization 562,754 546,364 530,450 515,000 500,000 Total costs and expenses: 7,042,893 6,694,945 6,435,988 6,319,940 10,019,580 Income from operations 6,582,107 4,380,055 3,014,012 1,880,060 (3,894,580) Other Income (expense): Government subsidies (1,000,000) Total other: - - - - (1,000,000) Net income 6,582,107 4,380,055 3,014,012 1,880,060 (2,894,580) Table 6.2-4: Proforma Statement for Waste Management, Inc. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 6.0 – Recommendations Page 143 of 163 The ‘Pay To Be Green’ program can be easily replicated to meet the needs of any community in the United States and Canada. Each scenario will have to be fully examined to determine the extent of changes to the program that are required. The biggest hurdle will be the community’s willingness to participate in the program and not see it as a burden on their lives. The program will also easily handle any increases in population that may occur in the future. This will primarily be seen in the increase of waste capacity the cities now have. With recycling taking a portion of the waste from the landfills, the waste trucks will not be as heavily burdened and the life of all the landfills in the area will be increased. It will also allow Waste Management to diversify away from their current process of running the business, which is considered the landfill model. The company would now be contributing to the safety and health of the environment and decrease the amount of waste being placed in landfills. It will be difficult at first since the waste disposal portion of their core business is where a majority of the profits are. This is primarily due to the cyclical nature the price of recyclable materials possess and the smaller profits that are being made. With time and more communities being involved in the program, Waste Management will turn this around in the selling of the recyclable materials that are sold. This will also strengthen the company’s relationship with the EPA and other government entities. This is needed at this time due to their poor track record in the past with these agencies. It will also reduce the amount of fines and fees that are paid each year due to poor handling of waste since the company will now be seen as the ‘green company of the future.’ Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 7.0 – References Page 144 of 163 7.0 References Barry, Gregory. (2006). Waste Management. Morningstar. Retrieved April 8, 2006, from http://quicktake.morningstar.com/Stock/MorningstarAnalysis.asp? country=USA&Symbol=WMI Better Business Bureau. (2006). Waste Management. Retrieved February 12,2006, from http://search.bbb.org. Bioreactors. (2005). Retrieved February 10,2006, from http://www.epa.gov/epaoswer/non-hw/muncpl/landfill/bioreactors.htm%236. Business and Company Resource Center. (2006) Waste Management History. Retrieved April 15, 2006 from www.uhv.edu Victoria College Library System in the Business and Company Resource Center. Cappiello, D. (2006, March 1). Landfills Seek Space Before Rules Change. Houston Chronicle, pp. B1 and B7. City of Fort Collins, CO Public Works Department. (2006). Refuse and Recycling Collection. Retrieved April 13, 2006 from http://fcgov.com/recycling. City of Loveland, CO Public Works Department. (2006). Refuse and Recycling Collection. Retrieved April 13, 2006 from www.ci.loveland.co.us/publicworks/solidwaste/swd_refusecollection. DATAMONITER. (2005, May). Global Environmental & Facilities Services Industry Profile. Retrieved April 26,2006, from http://uhv.edu Dignan, L. (2004). Waste Not. Baseline. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 7.0 – References Page 145 of 163 Duncan, J.W., Ginter, P.M., & Swayne, L.E. (1998). Competitive Advantage and Internal Organizational Assessment. Academy of Management Executive, 12(3), 6-16 E.J. Ourso College of Business. (2006). David P. Steiner. Retrieved February 11, 2006, from http://mba.lsu.edu/speakerseries/2006/steiner.asp. Energy Economic Newsletter. (2006). Crude Oil Futures. Retrieved April 20, 2006 from www.wtrg.com/prices.htm. EPA Website. (2006). Municipal Solid Waste Generation, Recycling and Disposal in the United States, Facts and Figures for 2003. Retrieved March 22, 2006 from http://www.epa.gov/epaoswer/non-hw/muncpl/pubs/msw05rpt.pdf. EPA Website. (2006). Pay as you throw. Retrieved April 1, 2006 from http://www.epa.gov/payt/. Evans, P. & Wurster, T. (2000). Blown to Bits: How the New Economics of Information Transforms Strategy. Gray-Larson. (2005). Project Management: The Managerial Process-Defining the Project. McGraw-Hill Company, Third Edition. Hitt, M., Duane, R., & Hoskisson, R. (2005). Strategic Management: Competitiveness and Globalization. Mason, Ohio: Thomson South-Western. Hoovers Financial Website. (2006). Waste Management Industry. Retrieved March 23, 2005 from www.hoovers.com Innovative Projects. (2004). Retrieved February 10,2006, from www.wm.com. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 7.0 – References Page 146 of 163 International Programs Center, US Census Bureau. (2004). Global Population Composition 2002. Retrieved March 31, 2006 from http://www.census.gov/prod/2004pubs/wp-02.pdf. James, R. (2006). PowerPoint presentation. Retrieved April 13, 2006 from http://www.wm.com/WM/investor/presentations/20060306RaymondJames.pdf Kotler, Philip. (2003). A Framework for Marketing Management, (2nd ed.), Pearson Education Inc. Miranda, M., & Aldy, J. (1996). Unit Pricing of Residential Municipal Solid Waste: Lessons from Nine Case Study Communities. Retrieved on March 25, 2006 from http://www.epa.gov/epaoswer/non-hw/payt/pdf/unitpric.pdf. Morningstar. (2006). Financial data retrieved on March 15, 2006 from various pages on Morningstar’s website at http://quote.morningstar.com/Quote.html?pgid= hetopquote&ticker=wmi MSN Money. (2006). Financial data. Retrieved March 15, 2006 from various pages on MSN Money’s website at http://moneycentral.msn.com/investor/research /profile.asp?Symbol=WMI Porter, Michael. (1996). What is Strategy? Harvard Business Review. Retrieved January 28, 2006, from http://uhv.edu Prime Lending Rate. (2006). Bank Prime Loan Rate Changes – Historical Dates of Changes and Rates. Retrieved April 20, 2006 from www.beginnersinvest.about.com. Project Portfolio Management. (2006). Retrieved April 1, 2006 from http://www.prod-dev.com/ Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 7.0 – References Page 147 of 163 R. Cooper, 2001. Winning at New Products. Product Development and Management Assoc. Retrieved on March 15, 2006 at http://www.prod-dev.com /pdf/Working_Paper_10.pdf#search='winning%20at%20new%20products' Republic Service. (2005). 10K Report. Retrieved March 15, 2006 from http://nocache.corporate-ir.net/ireye/ir_site.zhtml?ticker=RSG&script=800& layout=8 SAP (2005). Waste Management Selects SAP safe Passage Program. Retrieved January 18, 2006 from http://www.sap.com/company/press/Press.epx?PressID=5471 SAP solution brief. (2006). New Product and Development Introduction. Retrieved from http://www.sap.com/solutions/npdi/pdf/BWP_NPDI.pdf SEC Info. (2004). Waste Management. Retrieved February 11, 2006, from www.secinfo.com/dsvRu.z1Cs.htm#1stPage. SEC Website. (2006). “Fraud at Waste Management.” Retrieved March 22, 2006 from www.sec.gov SEC Website. (2006). Waste Management Founder and Five Other Former Top Officers Sued for Massive Fraud. Retrieved April 1,2006 from http://www.sec.gov/news/press/2002-44.txt. Stolovitsky, N. (2006). Project Portfolio Management for New Product Development: Tracking the Project Cycle from Idea to Launch. Retrieved March 15, 2006 from http://www.technologyevaluation.com/search/for/project%20porfolio%20manage ment Thomson Gale: Encyclopedia of American Industries. (2006). Refuse Systems. Retrieved April 26, 2006, from http://galenet.galegroup.com.ruby2.uhv.edu Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 7.0 – References Page 148 of 163 United Nations Population Division. (2004). World Population Prospects. Retrieved March 15, 2006 from www.esa.un.org/unpp/p2k0data.asp. US Census Bureau. (2006). Population Estimates. Retrieved April 3, 2006 from www.census.gov. US Department of Commerce. (2006). Bureau of Economic Analysis. Retrieved March 23, 2006 from www.bea.gov/bea/newsrel/gdp_glance.htm. ValueLine. (2006, Mar. 10). Allied Waste. Retrieved April 26, 2006, from http://uhv.edu ValueLine. (2006, Mar 10). Environmental Industry. Retrieved January 28, 2006, from http://uhv.edu ValueLine. (2006, Mar. 10). Republic Waste. Retrieved April 26, 2006, from http://uhv.edu ValueLine. (2006, Mar. 10). Waste Management. Retrieved January 28, 2006, from http://uhv.edu Waste Management, (2004). 10K and annual report. Retrieved March 15, 2006 from http://www.wm.com/wm/investor/subscriptions/archives/AnnualReport(10-K)- 12312004.pdf. Waste Management, (2005). 10K and annual report. Retrieved April 13, 2006 from http://www.wm.com/wm/investor/subscriptions/2005/2005Annual_with_10k.pdf Weihrich, Heinz. (2006). The TOWS Matrix: A Tool for Situational Analysis. University of San Francisco Publishing. Retrieved April 18, 2006, from http://www.usfca.edu/fac_staff/weihrichh/docs/tows.pdf Zero Waste America. (2006). Retrieved March 3, 2006 from www.zerowasteamerica.org. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 149 of 163 8.0 Appendix The following Appendix provides additional informational sources that were used in the formation of the case study on Waste Management, Inc. 8.1. Appendix I Interviews The following shows the details of the interviews the group conducted in order to gain first hand knowledge on the intricacies of Waste Management, Inc. This is from the viewpoint of employees and the cities that contract their services. The individuals contacted are listed below. 1. Adam Smith, Environmental Manager for Waste Management – Replied with answers to survey questions 2. Victor Diemert, IT Problem Manager for Waste Management – Replied in Telephone interview to survey questions 3. Sue Treanor, Manager of Fixed Assets at Waste Management – Replied with answers to survey questions 4. Jose Garcia, Commercial Motor Vehicle Operator with Waste Management – Replied with personal interview to survey questions 5. David Cohen, Waste Management Analysis for Value Line – Replied in Phone interview to questions 6. John Frye, Facilities Manager for a small manufacturing company – Replied in personal interview to questions Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 150 of 163 7. Randy Tanner, Traffic Manager and Hazardous Material Specialist for a small manufacturing company – Replied in personal interview to questions 8. Leslie Speight in the Public Relations office at Waste Management, Inc. – No Reply 9. Investor Relations at Republic Waste – No Reply 10. Solid Waste Manager at the City of Missouri City – No Reply 11. First Colony – No Reply Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 151 of 163 Sent via email to Adam Smith, Environmental Manager for Waste Management. Date: Tue, 21 Feb 2006 16:50:12 -0600 From: "Adam M. Smith" <asmith@sugarlandtx.gov> To: cnbharrell@yahoo.com Subject: Re: Waste Management Correen, I answered the following questions as best I could. I am really not one to dodge a question, but some that you asked were very difficult to answer given my position and the fact that I work for a City. If you need anything else just let me know. 1-How does the City of Sugar Land decide on its trash removal company? If it is through bids, how often are these bid out? The City follows all state and federal regulations developed to make sure municipalities award such contracts are awarded fairly. It is a bid process and the current contract is for a 5-year term. If you need more specific details I would have to refer you to our Purchasing Department. They are the most knowledgeable about and advise us with all aspects of this process. 2-What do you consider to be the most important factor in choosing the contract? Because we are a municipality, and are funded with tax dollars, the most important aspect is cost. Every company must submit a bid to provide the same level of service. Of course, there are some other factors that come into the equation. It is not 100% determined on cost. Again, I hate to dodge the question, but our employees in the Purchasing Department are the experts on this subject and they could more accurately explain to you in what instances a company that was not the lowest bidder can be awarded the contract. 3-Do you consider one trash company to be superior? If so, why? I cannot speak of any specific companies. I will tell you about what qualities that could make a trash company superior to others in the industry. 1) A well maintained fleet or trucks. 2) Permanent staffing as opposed to using temp agencies 3) Proven, effective management 4) Good history of providing good service and not having legal problems. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 152 of 163 4-As a city, are you required to follow more regulations in waste removal than a rural area? What is the most difficult regulation you have to deal with? I cannot answer this question as well as a city representative that maintains their own fleet. We have very few regulations we must follow because we contract out our services and make any regulations fall back on the contractor and the landfill. Adam Smith Environmental Manager City of Sugar Land Public Works Office (281) 275 - 2497 Cell (281) 513-3475 Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 153 of 163 Telephone interview with Victor Diemert, IT Problem Manager for Waste Management . 1. Do you know WM’s current strategy? Every employee attended a mandatory 2 day meeting where management discussed WM goals and strategy, but didn’t provide the framework on how to achieve these goals. 2. One of the strategies I have read about is the focus on correct pricing to improve margins. Do you think the customers are accepting this? The customers seem to be accepting the price increases, the focus is now on customer service and customers are willing to pay a little more for good service. 3. What can you tell me about the new routing software? WM is one big trucking company. The biggest expense is the trucking. Implementing the new routing software really did save the company a significant amount of money. 4. What is your opinion of the current morale? Employee morale has improved. The company seems to be through the difficulties after many acquisitions and is truly beginning to value its employees. 5. Do you think WM has competitive benefits? The benefits are ok relative to other companies. All companies are struggling with how to pay for the double digit health insurance increases. The benefits include stock options, stock purchase plan, and bonuses. Every exempt employee is usually on a bonus plan and the bonuses paid in March of this year were very good. 6. Are you continuing to see layoffs? The company has layoff about every three months it seems. There was a small one in January of this year. The last big layoff was in October of last year. It hit a lot of management levels. 7. Does the company use an integrated software? The main software for HR and financials is PeopleSoft. Since PeopleSoft was acquired by Oracle and it will no longer be supported, the company is looking into Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 154 of 163 SAP. SAP is what is currently being implemented for the customer service package. The company has hundreds of applications and thousands of servers. The IT department managers, about 40 of us, meet every morning to discuss problems users are experiencing and how to improve the systems. The other main software was adopted when WM acquired Mid-America. Mid- America had a good system, so WM began to use it. 8. Do you know much about the president, David Steiner? David Steiner used to be the legal council for WM. 9. Do you think the company will continue to be profitable? The Wheelabrator is the most profitable portion of the business. The rest of the business trends with the housing and construction market. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 155 of 163 Email Interview Questions with Sue Treanor, Manager of Fixed Assets at Waste Management, Inc. Hello Sue, Thank you again for taking the time to answer these questions that will help my group with the concluding competition project that encapsulates the MBA program at University of Houston – Victoria Jim, Please note that these responses are strictly mine personally and should not be represented as those of Waste Management. I hope this is helpful. Thanks, Sue 1.) What do you consider as the most significant driving forces in the external environment that affect the environmental services industry (examples of driving forces are governmental regulations and technological innovations)? a. Definitely government regulations. 2.) What do you consider as core competencies (company strengths such resources and capabilities) that enable a competitive advantage for Waste Management in the environmental services industry (examples of core competencies would include Waste Management’s environmentally conscious innovative culture, transportation infrastructure/management, or the organization’s brand name recognition)? a. I believe customer service is our number one core competency, along with the other items you have noted above. 3.) Typically, how long does Waste Management keep the collection and transfer commercial motor vehicles in operation and once these vehicles are taken out of service are they sold, scraped or removed in some other process? a. 10 years. b. They are normally scrapped for parts. 4.) What is the depreciable life of commercial motor vehicles (such as 5 years)? a. 8 years for Front-End Loader Trucks. All others, 10 years. 5.) Can you help explain asset swapping (like renting or available usage) in the industry such as transfer stations and landfills with other environmental service competitors such as Republic Waste or Allied. a. Swaps of Transfer Stations and Landfills are rare due to the permit. I’m not aware of any swaps related to these lines of business. Several years ago Waste entered into a swap with Allied Waste involving hauling companies. The reasons involved synergies and to better align the business in specific market areas. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 156 of 163 6.) Does Waste Management use technology such as RFID to keep track of trucks for operational and accounting purposes? a. This technology is currently being piloted in a few select market areas. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 157 of 163 Interview with Jose Garcia, commercial motor vehicle operator with Waste Management on 4/26/06. Jose Garcia is a commercial motor vehicle operator providing industrial service by picking up and dropping off containers. Jose Garcia operates out of the 1901 Afton facility at the approximate intersection of Antoine Drive and Hempstead Highway in Houston Texas. 1.) What is the nature of your position? I am an industrial roll off container operator. 2.) How do you like your position with Waste Management? I like driving commercial motor vehicles, and I enjoy working for Waste Management. The “Best Place to Work Program” is really beneficial for the employees. This program encompasses excellent benefits, training, and safety which create a positive work environment. 3.) Do you know much about the Waste Route program that strives to seek efficiencies with the commercial motor vehicles for collection and other processes? Waste Management dispatches the routes in an efficient manner based on information technology software programs. Currently, the significant awareness pertains to fuel costs. The drivers are informed to operate the commercial motor vehicles and run the routes properly in an effort to conserve on fuel costs. 4.) What locations do you travel to? I travel from the truck domicile location at 1901 Afton to customers for pick up and drop off of containers. I am also routed to transfer stations and to landfills. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 158 of 163 Phone call with David Cohen, Waste Management Analysis for Value Line: April 7, 2006 The only information Mr. Cohen could share was to go to the investor relations web page and review the documents, especially the 10K. He said if that didn’t give us enough information, we should contact public relations and wished us good luck. Personal interview with John Frye, facilities manager for a small manufacturing company. March 21, 2006 1. Which waste disposal company does your company use? Republic Waste. 2. Have you considered Waste Management? Yes, we have used them in the past, but they were more expensive and their service was terrible. 3. Would you consider using them again? No, even if they were cheaper, their service was not nearly as good as Republic Waste’s. 4. Do you have any other waste disposal needs? Yes, we dispose of hazardous waste, but neither Republic or Waste Management handles this type of disposal. Personal interview with Randy Tanner, traffic manager and hazardous material specialist for a small manufacturing company. March 21, 2006 1. Do you have hazardous waste that needs to be disposed? Yes. 2. Please tell me about the disposal of this waste. There are only two companies currently that handle this type of disposal; none of the major trash companies handle this type of disposal. The hazardous material is only allowed to be disposed of in Canada-and possibly one place in the US, so all of the disposals are sent there. 3. Do you know how they dispose of the material? I think it is actually incinerated. Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 159 of 163 Sent via email to Leslie Speight in the PR office at WM. No reply was received. Leslie, Thanks for taking time to talk to me today and helping me out. Below are the questions that I would appreciate if someone in your office could answer. Please allow me to introduce myself, my name is Correen Harrell and I am an MBA student at UHV-Sugar Land. In the final class for an MBA, the class are assigned is assigned a case competition; our case study is on your company, Waste Management. I would appreciate it if you would answer the following questions: 1-What is your current business strategy? I have read David Steiner's letter in the 2005 annual report which talks about strategic goals set forth in the business strategy; I would to become more familiar with this strategy. 2-What do you consider to be the most influential "general environment" factors in your business? 3-Please describe Waste Management's core competencies. What makes this company better than the competition? 4-Do you have any plans to grow internationally? If so, how? 5-What government regulations would you like to see implemented/deleted? 6-WM has gone through a significant turnaround and appears to be better for it! What was the biggest obstacle WM had to overcome during this turnaround period? 7-What is the next biggest challenge WM faces? 8-I noticed your income statement does not have any R&D expense. How do you innovate without R&D? Please include any other information you think would be applicable. Thank you for your time and assistance in this matter. Correen Harrell 281-240-3558 (work) 281-261-7180 (home) cnbharrell@yahoo.com Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 160 of 163 Sent via email to the investor relations address on Republic Waste’s website. No reply. Date: Mon, 20 Feb 2006 13:26:40 -0800 (PST) From: "Correen & Bill Harrell" <cnbharrell@yahoo.com> Subject: Information request. Thanks! To: contact@repwaste.com Hi, Please allow me to introduce myself, my name is Correen Harrell and I am an MBA student at UHV-Sugar Land. In the final class for an MBA, we are assigned a case competition. This semester the company we have been assigned is Waste Management. With this assignment, I am trying to gather information regarding Waste Management. I would appreciate it if you would answer the following questions: 1-What do you consider to be the most influential "general environment" factors in your business? 2-Please describe Republic's Waste's core competencies. What makes this company better than the competition? 3-Do you have any plans to grow internationally? If so, how? 4-What government regulations would you like to see implemented/deleted? Please include any other information you think would be applicable. I appreciate your time in assisting me with this! Correen Harrell 281-240-3558 (work) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 161 of 163 Sent via email to the solid waste manager at the City of Missouri City. No reply. Date: Mon, 20 Feb 2006 12:56:48 -0800 (PST) From: "Correen & Bill Harrell" <cnbharrell@yahoo.com> Subject: Solid Waste information needed To: ldorger@ci.mocity.tx.us Hi, Please allow me to introduce myself, my name is Correen Harrell and I am an MBA student at UHV-Sugar Land. In the final class for an MBA, we are assigned a case competition. This semester the company we have been assigned is Waste Management. With this assignment, I am trying to gather information regarding Waste Management. I would like to know the following: 1-How does the City of Missouri City decide on its trash removal company? If it is through bids, how often are these bid out? 2-What do you consider to be the most important factor in choosing the contract? 3-Do you consider one trash company to be superior? If so, why? 4-How strict are the government regulations that the city must comply with and which one is the most difficult? 5-What is the relationship with the City of Sugar Land and the City of Missouri City (and FCCSA) regarding trash removal? 6-I see there are a variety of companies serving the City of MoCity. Why is this? Since you have experience with the various companies, please give me your opinion on what you feel are the strengths and weaknesses of the companies. Please include any other information you think I appreciate your time in assisting me with this! Correen Harrell (City of Missouri City resident) 281-240-3558 (work) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 162 of 163 281-261-7180 (home) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts
  • Section 8.0 – Appendix Page 163 of 163 Sent via email to First Colony. No reply. Date: Mon, 20 Feb 2006 12:49:05 -0800 (PST) From: "Correen & Bill Harrell" <cnbharrell@yahoo.com> Subject: Please forward to your solid waste manager. Thanks! To: FirstColony@FirstColony.org Hi, Please allow me to introduce myself, my name is Correen Harrell and I am an MBA student at UHV-Sugar Land. In the final class for an MBA, we are assigned a case competition. This semester the company we have been assigned is Waste Management. With this assignment, I am trying to gather information regarding Waste Management. I would like to know the following: 1-How does FCCSA decide on its trash removal company? If it is through bids, how often are these bid out? 2-What do you consider to be the most important factor in choosing the contract? 3-Do you consider one trash company to be superior? If so, why? 4-How strict are the government regulations that the city must comply with and which one is the most difficult? 5-What is the relationship with the City of Sugar Land and the City of Missouri City regarding trash removal? Please include any other information you think I appreciate your time in assisting me with this! Correen Harrell 281-240-3558 (work) 281-261-7180 (home) Leading Edge Consulting Group May 4, 2006 The Waste Management Experts